UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, ~~2021~~2022

Commission file number: 001-15985

UNION BANKSHARES, INC.

03-0283552

20 LOWER MAIN STREET, P.O. BOX 667

MORRISVILLE, VT 05661

Registrant’s telephone number: 802-888-6600

Former name, former address and former fiscal year, if changed since last report: Not applicable

Securities registered pursuant to section 12(b) of the Act:

Common Stock, $2.00 par value

UNB

Nasdaq Stock Market

(Title of class)

(Trading Symbol)

(Exchanges registered on)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October ~~30, 2021.~~29, 2022.

Common Stock, $2 par value

~~4,485,156~~4,498,292

UNION BANKSHARES, INC.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
		(Unaudited)					(Unaudited)
Assets	Assets	(Dollars in thousands)				Assets	(Dollars in thousands)
Cash and due from banks	Cash and due from banks	$	5,029	$	5,413	Cash and due from banks	$	4,061	$	4,659
Federal funds sold and overnight deposits	Federal funds sold and overnight deposits	115,052		117,358		Federal funds sold and overnight deposits	28,080		61,263
Cash and cash equivalents	Cash and cash equivalents	120,081		122,771		Cash and cash equivalents	32,141		65,922
Interest bearing deposits in banks	Interest bearing deposits in banks	12,201		12,699		Interest bearing deposits in banks	14,441		13,196
Investment securities available-for-sale	Investment securities available-for-sale	184,204		105,763		Investment securities available-for-sale	240,121		267,819

Other investments	Other investments	1,183		1,047		Other investments	1,134		1,132
Total investments	Total investments	185,387		106,810		Total investments	241,255		268,951
Loans held for sale	Loans held for sale	17,821		32,188		Loans held for sale	3,143		13,829
Loans	Loans	772,186		771,169		Loans	938,048		787,050
Allowance for loan losses	Allowance for loan losses	(8,561)		(8,271)		Allowance for loan losses	(8,340)		(8,336)
Net deferred loan costs (fees)		36		(146)
Net deferred loan costs						Net deferred loan costs	1,304		705
Net loans	Net loans	763,661		762,752		Net loans	931,012		779,419

Premises and equipment, net	Premises and equipment, net	21,808		20,039		Premises and equipment, net	20,718		21,615

Company-owned life insurance	Company-owned life insurance	12,854		12,640		Company-owned life insurance	18,411		18,764
Other assets	Other assets	24,473		23,655		Other assets	39,169		23,677
Total assets	Total assets	$	1,158,286	$	1,093,554	Total assets	$	1,300,290	$	1,205,373
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Liabilities	Liabilities					Liabilities
Deposits	Deposits					Deposits
Noninterest bearing	Noninterest bearing	$	252,940	$	215,245	Noninterest bearing	$	337,513	$	264,888
Interest bearing	Interest bearing	680,438		637,369		Interest bearing	722,208		723,479
Time	Time	107,266		141,688		Time	136,691		106,715
Total deposits	Total deposits	1,040,644		994,302		Total deposits	1,196,412		1,095,082
Borrowed funds	Borrowed funds	7,000		7,164		Borrowed funds	25,000		—
Subordinated debentures and notes		16,164		—
Subordinated notes						Subordinated notes	16,196		16,171
Accrued interest and other liabilities	Accrued interest and other liabilities	10,730		11,221		Accrued interest and other liabilities	12,954		9,779
Total liabilities	Total liabilities	1,074,538		1,012,687		Total liabilities	1,250,562		1,121,032
Commitments and Contingencies	Commitments and Contingencies	0				Commitments and Contingencies
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,958,884 shares issued at September 30, 2021 and 4,954,732 shares issued at December 31, 2020		9,918		9,910
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,970,509 shares issued at September 30, 2022 and 4,967,093 shares issued at December 31, 2021						Common stock, $2.00 par value; 7,500,000 shares authorized; 4,970,509 shares issued at September 30, 2022 and 4,967,093 shares issued at December 31, 2021	9,941		9,934
Additional paid-in capital	Additional paid-in capital	1,728		1,393		Additional paid-in capital	2,150		1,769
Retained earnings	Retained earnings	76,452		71,097		Retained earnings	82,801		78,350
Treasury stock at cost; 473,730 shares at September 30, 2021 and 474,632 shares at December 31, 2020		(4,162)		(4,169)
Accumulated other comprehensive (loss) income		(188)		2,636
Treasury stock at cost; 474,622 shares at September 30, 2022 and 473,438 shares at December 31, 2021						Treasury stock at cost; 474,622 shares at September 30, 2022 and 473,438 shares at December 31, 2021	(4,226)		(4,160)
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(40,938)		(1,552)
Total stockholders' equity	Total stockholders' equity	83,748		80,867		Total stockholders' equity	49,728		84,341
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	1,158,286	$	1,093,554	Total liabilities and stockholders' equity	$	1,300,290	$	1,205,373

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 1

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			Three Months Ended September 30,				Nine Months Ended September 30,
		(Dollars in thousands, except per share data)									2022		2021		2022		2021
Interest and dividend income	Interest and dividend income									Interest and dividend income	(Dollars in thousands, except per share data)
Interest and fees on loans	Interest and fees on loans	$	9,115	$	8,803	$	27,236	$	25,659	Interest and fees on loans	$	10,074	$	9,115	$	27,558	$	27,236
Interest on debt securities:	Interest on debt securities:									Interest on debt securities:
Taxable	Taxable	511		305		1,371		1,029		Taxable	1,077		511		3,087		1,371
Tax exempt	Tax exempt	154		160		459		477		Tax exempt	221		154		664		459
Dividends	Dividends	4		27		12		87		Dividends	7		4		17		12
Interest on federal funds sold and overnight deposits	Interest on federal funds sold and overnight deposits	34		7		67		71		Interest on federal funds sold and overnight deposits	41		34		154		67
Interest on interest bearing deposits in banks	Interest on interest bearing deposits in banks	34		41		105		122		Interest on interest bearing deposits in banks	43		34		113		105
Total interest and dividend income	Total interest and dividend income	9,852		9,343		29,250		27,445		Total interest and dividend income	11,463		9,852		31,593		29,250
Interest expense	Interest expense									Interest expense
Interest on deposits	Interest on deposits	595		1,101		2,566		3,662		Interest on deposits	868		595		2,080		2,566
Interest on borrowed funds	Interest on borrowed funds	55		57		164		314		Interest on borrowed funds	14		55		14		164
Interest on subordinated debenture and notes		56		—		56		—
Interest on subordinated notes										Interest on subordinated notes	141		56		425		56
Total interest expense	Total interest expense	706		1,158		2,786		3,976		Total interest expense	1,023		706		2,519		2,786
Net interest income	Net interest income	9,146		8,185		26,464		23,469		Net interest income	10,440		9,146		29,074		26,464
Provision for loan losses	Provision for loan losses	—		800		225		1,600		Provision for loan losses	—		—		—		225
Net interest income after provision for loan losses	Net interest income after provision for loan losses	9,146		7,385		26,239		21,869		Net interest income after provision for loan losses	10,440		9,146		29,074		26,239
Noninterest income	Noninterest income									Noninterest income
Trust income	Trust income	216		173		599		524		Trust income	203		216		629		599
Service fees	Service fees	1,720		1,539		4,824		4,320		Service fees	1,803		1,720		5,176		4,824
Net (losses) gains on sales of investment securities available-for-sale	Net (losses) gains on sales of investment securities available-for-sale	(30)		—		(30)		11		Net (losses) gains on sales of investment securities available-for-sale	—		(30)		31		(30)
Net gains on sales of loans held for sale	Net gains on sales of loans held for sale	1,929		3,315		3,974		5,354		Net gains on sales of loans held for sale	448		1,929		748		3,974
Net (losses) gains on other investments	Net (losses) gains on other investments	(1)		76		58		114		Net (losses) gains on other investments	(60)		(1)		(120)		58
Other income	Other income	367		405		536		691		Other income	73		367		223		536
Total noninterest income	Total noninterest income	4,201		5,508		9,961		11,014		Total noninterest income	2,467		4,201		6,687		9,961
Noninterest expenses	Noninterest expenses									Noninterest expenses
Salaries and wages	Salaries and wages	3,918		3,718		10,554		9,668		Salaries and wages	3,575		3,918		10,505		10,554
Employee benefits	Employee benefits	1,192		1,204		3,564		3,417		Employee benefits	1,154		1,192		3,754		3,564
Occupancy expense, net	Occupancy expense, net	425		420		1,429		1,411		Occupancy expense, net	448		425		1,437		1,429
Equipment expense	Equipment expense	872		770		2,542		2,266		Equipment expense	948		872		2,798		2,542
Other expenses	Other expenses	2,141		1,883		6,301		5,516		Other expenses	2,241		2,141		6,281		6,301
Total noninterest expenses	Total noninterest expenses	8,548		7,995		24,390		22,278		Total noninterest expenses	8,366		8,548		24,775		24,390
Income before provision for income taxes	Income before provision for income taxes	4,799		4,898		11,810		10,605		Income before provision for income taxes	4,541		4,799		10,986		11,810
Provision for income taxes	Provision for income taxes	874		751		2,018		1,594		Provision for income taxes	783		874		1,815		2,018
Net income	Net income	$	3,925	$	4,147	$	9,792	$	9,011	Net income	$	3,758	$	3,925	$	9,171	$	9,792
Basic earnings per common share	Basic earnings per common share	$	0.87	$	0.92	$	2.18	$	2.01	Basic earnings per common share	$	0.84	$	0.87	$	2.04	$	2.18
Diluted earnings per common share	Diluted earnings per common share	$	0.87	$	0.92	$	2.17	$	2.01	Diluted earnings per common share	$	0.83	$	0.87	$	2.03	$	2.17
Weighted average number of common shares outstanding	Weighted average number of common shares outstanding	4,485,046		4,475,145		4,482,678		4,474,061		Weighted average number of common shares outstanding	4,495,348		4,485,046		4,494,751		4,482,678
Weighted average common and potential common shares for diluted EPS	Weighted average common and potential common shares for diluted EPS	4,512,558		4,492,842		4,508,152		4,491,721		Weighted average common and potential common shares for diluted EPS	4,521,973		4,512,090		4,514,105		4,508,152
Dividends per common share	Dividends per common share	$	0.33	$	0.32	$	0.99	$	0.96	Dividends per common share	$	0.35	$	0.33	$	1.05	$	0.99

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 2

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
(Dollars in thousands)
Net income $ 3,925 $ 4,147 $ 9,792 $ 9,011
Other comprehensive (loss) income, net of tax:
Investment securities available-for-sale:
Net unrealized holding (losses) gains arising during the period on investment securities available-for-sale (1,213) (124) (2,848) 1,616
Reclassification adjustment for net losses (gains) on sales of investment securities available-for-sale realized in net income 24 — 24 (9)
Total other comprehensive (loss) income (1,189) (124) (2,824) 1,607
Total comprehensive income $ 2,736 $ 4,023 $ 6,968 $ 10,618


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(Dollars in thousands)
Net income	$	3,758	$	3,925	$	9,171	$	9,792
Other comprehensive (loss) income, net of tax:
Investment securities available-for-sale:
Net unrealized holding losses arising during the period on investment securities available-for-sale	(12,539)		(1,213)		(39,361)		(2,848)
Reclassification adjustment for net gains (losses) on sales of investment securities available-for-sale realized in net income	—		24		(25)		24






Total comprehensive (loss) income	$	(8,781)	$	2,736	$	(30,215)	$	6,968

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 3

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)


		Three Month Periods Ended September 30, 2021 and 2020														Three Month Periods Ended September 30, 2022 and 2021
		Common Stock									Accumulated other comprehensive income (loss)					Common Stock									Accumulated other comprehensive (loss) income
		Shares, net of treasury	Amount		Additional paid-in capital		Retained earnings		Treasury stock				Total stockholders’ equity			Shares, net of treasury	Amount		Additional paid-in capital		Retained earnings		Treasury stock				Total stockholders’ equity
																(Dollars in thousands, except per share data)
Balances June 30, 2022															Balances June 30, 2022	4,494,812	$	9,940	$	2,019	$	80,617	$	(4,231)	$	(28,399)	$	59,946
Net income															Net income	—	—		—		3,758		—		—		3,758
Other comprehensive loss															Other comprehensive loss	—	—		—		—		—		(12,539)		(12,539)
Dividend reinvestment plan															Dividend reinvestment plan	538	—		9		—		5		—		14
Cash dividends declared ($0.35 per share)															Cash dividends declared ($0.35 per share)	—	—		—		(1,574)		—		—		(1,574)
Stock based compensation expense															Stock based compensation expense	537	1		122		—		—		—		123

Balances, September 30, 2022															Balances, September 30, 2022	4,495,887	$	9,941	$	2,150	$	82,801	$	(4,226)	$	(40,938)	$	49,728
		(Dollars in thousands, except per share data)
Balances June 30, 2021	Balances June 30, 2021	4,483,873	$	9,916	$	1,609	$	74,006	$	(4,165)	$	1,001	$	82,367	Balances June 30, 2021	4,483,873	$	9,916	$	1,609	$	74,006	$	(4,165)	$	1,001	$	82,367
Net income	Net income	—	—		—		3,925		—		—		3,925		Net income	—	—		—		3,925		—		—		3,925
Other comprehensive loss	Other comprehensive loss	—	—		—		—		—		(1,189)		(1,189)		Other comprehensive loss	—	—		—		—		—		(1,189)		(1,189)
Dividend reinvestment plan	Dividend reinvestment plan	281	—		6		—		3		—		9		Dividend reinvestment plan	281	—		6		—		3		—		9
Cash dividends declared ($0.33 per share)	Cash dividends declared ($0.33 per share)	—	—		—		(1,479)		—		—		(1,479)		Cash dividends declared ($0.33 per share)	—	—		—		(1,479)		—		—		(1,479)
Stock based compensation expense	Stock based compensation expense	—	—		91		—		—		—		91		Stock based compensation expense	—	—		91		—		—		—		91
Exercise of stock options	Exercise of stock options	1,000	2		22		—		—		—		24		Exercise of stock options	1,000	2		22		—		—		—		24

Balances, September 30, 2021	Balances, September 30, 2021	4,485,154	$	9,918	$	1,728	$	76,452	$	(4,162)	$	(188)	$	83,748	Balances, September 30, 2021	4,485,154	$	9,918	$	1,728	$	76,452	$	(4,162)	$	(188)	$	83,748

Balances June 30, 2020		4,474,899	$	9,901	$	1,306	$	66,020	$	(4,177)	$	2,717	$	75,767
Net income		—	��		—		4,147		—		—		4,147
Other comprehensive loss		—	—		—		—		—		(124)		(124)
Dividend reinvestment plan		407	—		4		—		4		—		8
Cash dividends declared ($0.32 per share)		—	—		—		(1,432)		—		—		(1,432)
Stock based compensation expense		—	—		58		—		—		—		58

Balances, September 30, 2020		4,475,306	$	9,901	$	1,368	$	68,735	$	(4,173)	$	2,593	$	78,424


		Nine Month Periods Ended September 30, 2021 and 2020														Nine Month Periods Ended September 30, 2022 and 2021
		Common Stock									Accumulated other comprehensive income (loss)					Common Stock									Accumulated other comprehensive (loss) income
		Shares, net of treasury	Amount		Additional paid-in capital		Retained earnings		Treasury stock				Total stockholders’ equity			Shares, net of treasury	Amount		Additional paid-in capital		Retained earnings		Treasury stock				Total stockholders’ equity
																(Dollars in thousands, except per share data)
Balances, December 31, 2021															Balances, December 31, 2021	4,493,655	$	9,934	$	1,769	$	78,350	$	(4,160)	$	(1,552)	$	84,341
Net income															Net income	—	—		—		9,171		—		—		9,171
Other comprehensive loss															Other comprehensive loss	—	—		—		—		—		(39,386)		(39,386)
Dividend reinvestment plan															Dividend reinvestment plan	1,466	—		29		—		13		—		42
Cash dividends declared ($1.05 per share)															Cash dividends declared ($1.05 per share)	—	—		—		(4,720)		—		—		(4,720)
Stock based compensation expense															Stock based compensation expense	3,416	7		352		—		—		—		359

Purchase of treasury stock															Purchase of treasury stock	(2,650)	—		—		—		(79)		—		(79)
Balances, September 30, 2022															Balances, September 30, 2022	4,495,887	$	9,941	$	2,150	$	82,801	$	(4,226)	$	(40,938)	$	49,728
		(Dollars in thousands, except per share data)
Balances, December 31, 2020	Balances, December 31, 2020	4,480,100	$	9,910	$	1,393	$	71,097	$	(4,169)	$	2,636	$	80,867	Balances, December 31, 2020	4,480,100	$	9,910	$	1,393	$	71,097	$	(4,169)	$	2,636	$	80,867
Net income	Net income	—	—		—		9,792		—		—		9,792		Net income	—	—		—		9,792		—		—		9,792
Other comprehensive loss	Other comprehensive loss	—	—		—		—		—		(2,824)		(2,824)		Other comprehensive loss	—	—		—		—		—		(2,824)		(2,824)
Dividend reinvestment plan	Dividend reinvestment plan	999	—		21		—		9		—		30		Dividend reinvestment plan	999	—		21		—		9		—		30
Cash dividends declared ($0.99 per share)	Cash dividends declared ($0.99 per share)	—	—		—		(4,437)		—		—		(4,437)		Cash dividends declared ($0.99 per share)	—	—		—		(4,437)		—		—		(4,437)
Stock based compensation expense	Stock based compensation expense	2,152	4		270		—		—		—		274		Stock based compensation expense	2,152	4		270		—		—		—		274
Exercise of stock options	Exercise of stock options	2,000	4		44		—		—		—		48		Exercise of stock options	2,000	4		44		—		—		—		48
Purchase of treasury stock	Purchase of treasury stock	(97)	—		—		—		(2)		—		(2)		Purchase of treasury stock	(97)	—		—		—		(2)		—		(2)
Balances, September 30, 2021	Balances, September 30, 2021	4,485,154	$	9,918	$	1,728	$	76,452	$	(4,162)	$	(188)	$	83,748	Balances, September 30, 2021	4,485,154	$	9,918	$	1,728	$	76,452	$	(4,162)	$	(188)	$	83,748

Balances, December 31, 2019		4,471,977	$	9,897	$	1,124	$	64,019	$	(4,183)	$	986	$	71,843
Net income		—	—		—		9,011		—		—		9,011
Other comprehensive income		—	—		—		—		—		1,607		1,607
Dividend reinvestment plan		1,144	—		17		—		10		—		27
Cash dividends declared ($0.96 per share)		—	—		—		(4,295)		—		—		(4,295)
Stock based compensation expense		1,185	2		207		—		—		—		209
Exercise of stock options		1,000	2		20		—		—		—		22

Balances, September 30, 2020		4,475,306	$	9,901	$	1,368	$	68,735	$	(4,173)	$	2,593	$	78,424

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 4

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Cash Flows From Operating Activities	Cash Flows From Operating Activities	(Dollars in thousands)				Cash Flows From Operating Activities	(Dollars in thousands)
Net income	Net income	$	9,792	$	9,011	Net income	$	9,171	$	9,792
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	Depreciation	1,364		1,408		Depreciation	1,373		1,364
Provision for loan losses	Provision for loan losses	225		1,600		Provision for loan losses	—		225
Deferred income tax provision	Deferred income tax provision	12		20		Deferred income tax provision	11		12
Net amortization of premiums on investment securities	Net amortization of premiums on investment securities	443		389		Net amortization of premiums on investment securities	485		443
Equity in losses of limited partnerships	Equity in losses of limited partnerships	739		679		Equity in losses of limited partnerships	864		739
Stock based compensation expense	Stock based compensation expense	274		209		Stock based compensation expense	359		274
Net (increase) decrease in unamortized loan costs		(182)		1,579
Net increase in unamortized loan costs						Net increase in unamortized loan costs	(599)		(182)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	168,204		193,016		Proceeds from sales of loans held for sale	60,915		168,204
Origination of loans held for sale	Origination of loans held for sale	(149,863)		(213,023)		Origination of loans held for sale	(49,481)		(149,863)
Net gains on sales of loans held for sale	Net gains on sales of loans held for sale	(3,974)		(5,354)		Net gains on sales of loans held for sale	(748)		(3,974)
Net losses on disposals of premises and equipment	Net losses on disposals of premises and equipment	108		—		Net losses on disposals of premises and equipment	—		108
Net losses (gains) on sales of investment securities available-for-sale		30		(11)
Net (gains) losses on sales of investment securities available-for-sale						Net (gains) losses on sales of investment securities available-for-sale	(31)		30

Net gains on sales of other real estate owned	Net gains on sales of other real estate owned	(11)		—		Net gains on sales of other real estate owned	—		(11)
Net gains on other investments		(58)		(114)
Decrease (increase) in accrued interest receivable		1,131		(1,167)
Net losses (gains) on other investments						Net losses (gains) on other investments	120		(58)
(Increase) decrease in accrued interest receivable						(Increase) decrease in accrued interest receivable	(6)		1,131
Amortization of core deposit intangible	Amortization of core deposit intangible	71		129		Amortization of core deposit intangible	—		71
Amortization of debt issuance costs						Amortization of debt issuance costs	25		3
Increase in other assets	Increase in other assets	(652)		(5)		Increase in other assets	(312)		(652)

Decrease in other liabilities		(358)		(48)
Net cash provided by (used in) operating activities		27,295		(11,682)
Increase (decrease) in other liabilities						Increase (decrease) in other liabilities	575		(358)
Net cash provided by operating activities						Net cash provided by operating activities	22,721		27,298
Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Interest bearing deposits in banks	Interest bearing deposits in banks					Interest bearing deposits in banks
Proceeds from maturities and redemptions	Proceeds from maturities and redemptions	4,482		1,336		Proceeds from maturities and redemptions	5,478		4,482
Purchases	Purchases	(3,984)		(3,735)		Purchases	(6,723)		(3,984)

Investment securities available-for-sale	Investment securities available-for-sale					Investment securities available-for-sale
Proceeds from sales	Proceeds from sales	8,718		3,076		Proceeds from sales	6,827		8,718
Proceeds from maturities, calls and paydowns	Proceeds from maturities, calls and paydowns	20,931		14,528		Proceeds from maturities, calls and paydowns	19,161		20,931
Purchases	Purchases	(112,137)		(16,675)		Purchases	(48,599)		(112,137)
Net purchases of other investments	Net purchases of other investments	(78)		(70)		Net purchases of other investments	(122)		(78)
Net (increase) decrease in nonmarketable stock		(14)		1,457
Net increase in nonmarketable stock						Net increase in nonmarketable stock	(652)		(14)

Net increase in loans	Net increase in loans	(1,066)		(95,866)		Net increase in loans	(151,000)		(1,066)
Recoveries of loans charged off	Recoveries of loans charged off	67		29		Recoveries of loans charged off	6		67
Purchases of premises and equipment		(3,241)		(937)
Net purchases of premises and equipment						Net purchases of premises and equipment	(476)		(3,241)

Investments in limited partnerships	Investments in limited partnerships	(1,705)		(2,257)		Investments in limited partnerships	(1,975)		(1,705)

Proceeds from sales of other real estate owned	Proceeds from sales of other real estate owned	61		—		Proceeds from sales of other real estate owned	—		61

Net cash used in investing activities	Net cash used in investing activities	(87,966)		(99,114)		Net cash used in investing activities	(178,075)		(87,966)

Union Bankshares, Inc. Page 5


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021

Cash Flows From Financing Activities	Cash Flows From Financing Activities	(Dollars in thousands)				Cash Flows From Financing Activities	(Dollars in thousands)

Repayment of long-term borrowings	Repayment of long-term borrowings	(164)		—		Repayment of long-term borrowings	—		(164)
Net decrease in short-term borrowings outstanding		—		(37,667)
Net increase in short-term borrowings outstanding						Net increase in short-term borrowings outstanding	25,000		—
Net increase in noninterest bearing deposits	Net increase in noninterest bearing deposits	37,695		68,121		Net increase in noninterest bearing deposits	72,625		37,695
Net increase in interest bearing deposits		43,069		104,030
Net decrease in time deposits		(34,422)		(6,099)
Proceeds from issuance of subordinated debentures, net of unamortized issuance costs		16,164		—
Issuance of common stock		48		22
Net (decrease) increase in interest bearing deposits						Net (decrease) increase in interest bearing deposits	(1,271)		43,069
Net increase (decrease) in time deposits						Net increase (decrease) in time deposits	29,976		(34,422)
Proceeds from issuance of subordinated notes						Proceeds from issuance of subordinated notes	—		16,500
Debt issuance costs incurred with issuance of subordinated notes						Debt issuance costs incurred with issuance of subordinated notes	—		(339)
Exercise of stock options						Exercise of stock options	—		48
Purchase of treasury stock	Purchase of treasury stock	(2)		—		Purchase of treasury stock	(79)		(2)
Dividends paid	Dividends paid	(4,407)		(4,268)		Dividends paid	(4,678)		(4,407)
Net cash provided by financing activities	Net cash provided by financing activities	57,981		124,139		Net cash provided by financing activities	121,573		57,978
Net (decrease) increase in cash and cash equivalents		(2,690)		13,343
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(33,781)		(2,690)
Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Beginning of period	Beginning of period	122,771		51,134		Beginning of period	65,922		122,771
End of period	End of period	$	120,081	$	64,477	End of period	$	32,141	$	120,081
Supplemental Disclosures of Cash Flow Information	Supplemental Disclosures of Cash Flow Information					Supplemental Disclosures of Cash Flow Information
Interest paid	Interest paid	$	2,842	$	4,498	Interest paid	$	2,654	$	2,842
Income taxes paid	Income taxes paid	$	1,550	$	400	Income taxes paid	$	450	$	1,550

Supplemental Schedule of Noncash Investing Activities	Supplemental Schedule of Noncash Investing Activities					Supplemental Schedule of Noncash Investing Activities

Investment in limited partnerships acquired by capital contributions payable	Investment in limited partnerships acquired by capital contributions payable	$	1,264	$	2,722	Investment in limited partnerships acquired by capital contributions payable	$	3,494	$	1,264

Dividends paid on Common Stock:	Dividends paid on Common Stock:					Dividends paid on Common Stock:
Dividends declared	Dividends declared	$	4,437	$	4,295	Dividends declared	$	4,720	$	4,437
Dividends reinvested	Dividends reinvested	(30)		(27)		Dividends reinvested	(42)		(30)
		$	4,407	$	4,268		$	4,678	$	4,407

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 6

UNION BANKSHARES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The accompanying unaudited interim consolidated financial statements of Union Bankshares, Inc. and Subsidiary (together, the Company) as of September 30, ~~2021,~~2022, and for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, have been prepared in conformity with GAAP for interim financial information, general practices within the banking industry, and the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020 (2020~~2021, as amended by Amendment No. 1 on Form 10-K/A (2021 Annual Report). The Company's sole subsidiary is Union Bank. In the opinion of the Company’s management, all adjustments, consisting only of normal recurring adjustments and disclosures necessary for a fair presentation of the information contained herein, have been made. This information should be read in conjunction with the Company’s ~~2020~~2021 Annual Report. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, ~~2021,~~2022, or any future interim period.

The Company is a “smaller reporting company” and as permitted under the rules and regulations of the SEC, has elected to provide its consolidated statements of income, comprehensive income, cash flows and changes in stockholders’ equity for a two year, rather than three year, period. The Company has also elected to provide certain other scaled disclosures in this report, as permitted for smaller reporting companies.

Certain amounts in the ~~2020~~2021 consolidated financial statements have been reclassified to conform to the current year presentation.

~~Union Bankshares, Inc. Page 7~~

In addition to the definitions set forth elsewhere in this report, the acronyms, abbreviations and capitalized terms identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Other Information". The following is provided to aid the reader and provide a reference page when reviewing this Form 10-Q.

Union Bankshares, Inc. Page 7

AFS:

Available-for-sale

ICS:

Insured Cash Sweeps of the Promontory Interfinancial Network

ALCO:

Asset Liability Committee

IRS:

Internal Revenue Service

ALL:

Allowance for loan losses

MBS:

Mortgage-backed security

ASC:

Accounting Standards Codification

MSRs:

Mortgage servicing rights

ASU:

Accounting Standards Update

OAO:

Other assets owned

Board:

Board of Directors

OCI:

Other comprehensive income (loss)

bp or bps:

Basis point(s)

OFAC:

U.S. Office of Foreign Assets Control

CARES Act:

Coronavirus Aid, Relief and Economic Security Act

OREO:

Other real estate owned

CDARS:

Certificate of Deposit Accounts Registry Service of the Promontory Interfinancial Network

OTTI:

Other-than-temporary impairment

Company:

Union Bankshares, Inc. and Subsidiary

OTT:

Other-than-temporary

COVID-19:

Novel Coronavirus

PPP:

Paycheck Protection Program

Dodd-Frank Act:

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

~~PPPLF:~~RD:

~~PPP Liquidity Facility of the FRB~~USDA Rural Development

DRIP:

Dividend Reinvestment Plan

~~RD:~~RSU:

~~USDA Rural Development~~Restricted Stock Unit

FASB:

Financial Accounting Standards Board

~~RSU:~~SBA:

~~Restricted Stock Unit~~U.S. Small Business Administration

FDIC:

Federal Deposit Insurance Corporation

~~SBA:~~

~~U.S. Small Business Administration~~

~~FHA:~~

~~U.S. Federal Housing Administration~~

SEC:

U.S. Securities and Exchange Commission

~~FHLB:~~FHA:

U.S. Federal ~~Home Loan Bank of Boston~~Housing Administration

TDR:

Troubled-debt restructuring

~~FRB:~~FHLB:

Federal ~~Reserve Board~~Home Loan Bank of Boston

Union:

Union Bank, the sole subsidiary of Union Bankshares, Inc

FRB:

Federal Reserve Board

USDA:

U.S. Department of Agriculture

FHLMC/Freddie Mac:

Federal Home Loan Mortgage Corporation

~~USDA:~~VA:

U.S. ~~Department of Agriculture~~Veterans Administration

GAAP:

Generally Accepted Accounting Principles in the United States

~~VA:~~2014 Equity Plan:

~~U.S. Veterans Administration~~2014 Equity Incentive Plan, as amended

HTM:

Held-to-maturity

~~2014 Equity Plan:~~2021 Annual Report:

~~2014 Equity Incentive Plan~~Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A

HUD:

U.S. Department of Housing and Urban Development

~~2020 Annual Report~~

~~Annual Report on Form 10-K for the year ended December 31, 2020~~

~~Note 2. Risks and Uncertainties~~

Significant progress has been made to combat the outbreak of COVID-19; however, the global pandemic has adversely impacted a broad range of industries in which the Company's customers operate and could still impair their ability to fulfill their financial obligations to the Company. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. While it appears that health and economic conditions are trending in a positive direction as of September 30, 2021, a resurgence in the virus or its variants could have an adverse effect on the Company's business, financial condition, results of operations and cash flows. While it is not possible to know the full impact COVID-19, and any potential measures to curtail its spread, will have on the Company's future operations, the Company is disclosing potentially material items of which it is aware.

Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout of the pandemic. The CARES Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act was to curb the economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors through programs like the PPP. During December 2020, many provisions of the CARES Act were extended through the end of 2021. Additionally, The American Rescue Plan Act of 2021, a $1.9 trillion economic stimulus bill, was signed into law in March 2021. This package builds upon many of the measures in the CARES Act and is intended to speed up the recovery from the economic and health effects of COVID-19.

~~Union Bankshares, Inc. Page 8~~

~~Financial position and results of operations~~

The Company has not yet experienced any charge-offs related to COVID-19. See Note 8. Should economic conditions worsen as a result of a resurgence of the virus or its variants and resulting measures to curtail its spread, the Company could experience increases in the required ALL and record additional provision for loan losses. The use of payment deferrals favorably impacted the ratio of past due loans to total loans as well other asset quality ratios at September 30, 2021. It is possible that asset quality measures could worsen at future measurement periods if a resurgence of COVID-19 progresses.

Through September 30, 2021, the Company had executed modifications on outstanding loan balances of $145.6 million that carried accrued interest of $926 thousand. Of the total modifications executed, at September 30, 2021 outstanding loan balances of $748 thousand remained subject to modified terms and carried accrued interest of $34 thousand.

~~Capital and liquidity~~

As of September 30, 2021, all of the Company's and Union's capital ratios were in excess of all regulatory requirements. While the Company believes it has sufficient capital to withstand a double-dip economic recession brought about by a resurgence in COVID-19, the reported and regulatory capital ratios could be adversely impacted by further credit loss expense. The Company relies on cash on hand as well as dividends from its subsidiary bank to pay dividends to shareholders. If the Company’s capital deteriorates such that its subsidiary bank is unable to pay dividends to it for an extended period of time, the Company may not be able to maintain its dividend to shareholders at the current level. Management continues to analyze the Company's current capital levels and its ability to maintain growth projections and absorb future credit losses while maintaining sufficient levels of capital.

The Company maintains access to multiple sources of liquidity. Wholesale funding markets have remained open to the Company. If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin. If an extended recession caused large numbers of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding. To date in 2021, primarily as a result of the deposit of PPP loan proceeds and government assistance payments under the CARES Act and The American Rescue Plan Act of 2021, the Company has experienced a significant increase in customer deposits.

~~Asset valuation~~

COVID-19 has not affected the Company's ability to account timely for the assets on the balance sheet; however, a resurgence of COVID-19 could cause this to change in future periods. The Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause the Company to perform a goodwill impairment test, an intangible asset impairment test, or both, resulting in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill or intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital. The Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP. As of September 30, 2021, goodwill was not impaired and there was no impairment with respect to our intangible assets, premises and equipment or other long-lived assets.

~~Processes, controls and business continuity plan~~

The Company’s preparedness efforts, coupled with quick and decisive plan implementation, has resulted in minimal impacts to operations as a result of COVID-19. At September 30, 2021, some employees have returned to banking facilities while some continue to work remotely. The Company has not experienced any disruption to its operations. The Company has not incurred additional material cost related to the remote working strategy to date, nor are material costs anticipated in future periods.

As of September 30, 2021, management does not anticipate significant challenges to its ability to maintain the systems and controls and does not currently face any material resource constraint through the implementation of our business continuity plans.

~~Lending operations and accommodations to borrowers~~

Union continued to work with borrowers during the unprecedented situation caused by COVID-19 and as allowed under the CARES Act, executed a payment deferral program for its customers that were adversely affected by COVID-19. Depending on the demonstrated need of the customer, the Company either deferred the full loan payment or the principal component of the loan payment for up to 180 days for the majority of the deferral requests. The Company had executed 313 of these deferrals on outstanding loan balances of $145.6 million as of September 30, 2021. Of the total deferrals executed, 5 remained in effect on outstanding loan balances of $748 thousand as of September 30, 2021. In accordance with interagency guidance issued in March 2020 and updated in April 2020, and confirmed by the FASB, these short term deferrals are not considered TDRs. In August 2020, the federal banking regulators issued supplemental guidance for working with borrowers as their loans near the end of their accommodation period. It is possible that in spite of our best efforts to assist our borrowers and achieve full

~~Union Bankshares, Inc. Page 9~~

collection of our investment, these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings; however, the amount of any future charge-offs on deferred loans is unknown.

With the passage of the PPP, administered by the SBA, the Company assisted its customers with applications for resources through the program. PPP loans bear a mandated annual interest rate of 1.0%. The PPP was initially launched with loans having a two-year term, but subsequent revisions to the PPP allowed the maximum term be extended to five years. The majority of the Company's PPP loans were originated with the two-year term and have not been extended to five years. As of September 30, 2021, $102.1 million of PPP loans were originated of which $73.9 million have been forgiven by the SBA in accordance with the terms of the program. It is the Company’s understanding that loans funded through the PPP are fully guaranteed by the U.S. Government, subject to borrower eligibility requirements. Should those circumstances change, the Company could be required to establish additional allowance for credit losses through additional credit loss expense charged to earnings.

Note 3.2. Legal Contingencies

In the normal course of business, the Company is involved in various legal and other proceedings. In the opinion of management, any liability resulting from such proceedings is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.

Union Bankshares, Inc. Page 8

Note 4.3. Per Share Information

The following table presents the reconciliation between the calculation of basic EPS and diluted EPS for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,						For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2021		2020		2021		2020				2022		2021		2022		2021
		(Dollars in thousands, except per share data)								(Dollars in thousands, except per share data)
Net income	Net income	$	3,925	$	4,147	$	9,792	$	9,011		Net income	$	3,758	$	3,925	$	9,171	$	9,792
Weighted average common shares outstanding for basic EPS	Weighted average common shares outstanding for basic EPS	4,485,046		4,475,145		4,482,678		4,474,061			Weighted average common shares outstanding for basic EPS	4,495,348		4,485,046		4,494,751		4,482,678
Dilutive effect of stock-based awards		27,512		17,697		25,474		17,660
Dilutive effect of stock-based awards (1)											Dilutive effect of stock-based awards (1)	26,625		27,044		19,354		25,474
Weighted average common and potential common shares for diluted EPS	Weighted average common and potential common shares for diluted EPS	4,512,558		4,492,842		4,508,152		4,491,721			Weighted average common and potential common shares for diluted EPS	4,521,973		4,512,090		4,514,105		4,508,152
Earnings per common share:	Earnings per common share:										Earnings per common share:
Basic EPS	Basic EPS	$	0.87	$	0.92	$	2.18	$	2.01		Basic EPS	$	0.84	$	0.87	$	2.04	$	2.18
Diluted EPS	Diluted EPS	$	0.87	$	0.92	$	2.17	$	2.01		Diluted EPS	$	0.83	$	0.87	$	2.03	$	2.17

____________________

(1)Dilutive effect of stock based awards represents the effect of the assumed exercise of stock options (2021 only) and vesting of restricted stock units. Unvested awards do not have dividend or dividend equivalent rights.

Note 5.4. Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under ~~the new~~this guidance, which will replace the existing incurred loss model for recognizing credit losses, banks and other lending institutions will be required to recognize the full amount of expected credit losses. The ~~new~~ guidance in the ASU, which is referred to as the current expected credit loss model ("CECL"), requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses. A modified version of these requirements also applies to debt securities classified as AFS. As initially proposed, the ASU was to become effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted for fiscal years beginning after December 15, 2018, including interim periods within such years. In October 2019, the FASB approved amendments to delay the effective date of the ASU to fiscal years beginning after December 31, 2022, including interim periods within those fiscal years, for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The Company did not choose to early adopt the ASU. As the Company is a smaller reporting company, the ~~delay is applicable to~~ASU will become effective for the Company ~~and~~beginning with the ~~Company does not intend to early adopt the ASU at this time.~~2023 fiscal year. The Company has established a CECL implementation team and developed a transition project plan. The Company utilizes a software package for its current calculation of the allowance for loan losses that will also be utilized for CECL implementation. Historical data has been compiled and ~~training on utilizing the software for the existing incurred loss model has been completed. The Company~~ continues ~~the collection of historical data~~to be collected and ~~training~~progress is ongoing surrounding CECL implementation and methodologies. ~~This~~In addition, the Company is conducting parallel calculations under the existing incurred loss model and the CECL model throughout 2022. The Company continues to review, validate and refine its CECL loss methodologies and control environment in preparation for adoption. The measures will facilitate the ~~eventual~~final implementation process and management's evaluation of the potential impact of the ASU on the Company's consolidated financial statements.

~~Union Bankshares, Inc. Page 10~~

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying ~~generally accepted accounting principles~~GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The transition away from LIBOR is not expected to have a material impact on the Company's consolidated financial statements.

In March ~~2020, various financial institution regulatory agencies, including~~2022, the ~~FRB and the FDIC (“the agencies”),~~FASB issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The guidance was subsequently amended following passage of the CARES Act, which included a provision for addressing certain COVID-19 related loan modifications. The interagency statement was effective immediately and impacted accounting for loan modifications. Under ASCASU No. ~~310-40,~~2022-02, ~~Receivables –~~Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures which eliminates the accounting guidance for TDRs, while enhancing disclosure requirements for certain loan refinancings and restructurings by ~~Creditors~~,creditors when a ~~restructuring~~borrower is experiencing financial difficulty. The ASU also requires disclosure of ~~debt constitutes a TDR if the creditor,~~current period charge offs by year of origination for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months or less) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current areloans and leases. ASU No. 2022-02 is

Union Bankshares, Inc. Page 9

effective for fiscal years, and interim periods within those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. The agencies supplemented their interagency guidance on August 3, 2020 to provide prudent risk management and consumer protection principles for financial institutions to consider while working with borrowers near the end of their initial loan accommodation period. The interagency guidancefiscal years, beginning after December 15, 2022. ASU No. 2022-02 is not expected to have a material impact on the Company’s consolidated financial statements.

Note 6.5. Investment Securities

Debt securities AFS as of the balance sheet dates consisted of the following:


September 30, 2021		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2022										September 30, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(Dollars in thousands)									(Dollars in thousands)

U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	30,489	$	93	$	(303)	$	30,279	U.S. Government-sponsored enterprises	$	45,278	$	4	$	(5,934)	$	39,348
Agency mortgage-backed	Agency mortgage-backed	119,082		770		(2,451)		117,401		Agency mortgage-backed	196,908		—		(36,063)		160,845
State and political subdivisions	State and political subdivisions	27,043		1,207		(38)		28,212		State and political subdivisions	43,416		24		(9,597)		33,843
Corporate	Corporate	7,828		494		(10)		8,312		Corporate	6,339		—		(254)		6,085
Total	Total	$	184,442	$	2,564	$	(2,802)	$	184,204	Total	$	291,941	$	28	$	(51,848)	$	240,121


December 31, 2020		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2021										December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(Dollars in thousands)									(Dollars in thousands)

U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	6,462	$	137	$	(51)	$	6,548	U.S. Government-sponsored enterprises	$	37,176	$	55	$	(593)	$	36,638
Agency mortgage-backed	Agency mortgage-backed	61,123		1,307		(78)		62,352		Agency mortgage-backed	181,216		574		(3,540)		178,250
State and political subdivisions	State and political subdivisions	27,025		1,439		(3)		28,461		State and political subdivisions	44,068		1,293		(107)		45,254
Corporate	Corporate	7,817		660		(75)		8,402		Corporate	7,323		381		(27)		7,677
Total	Total	$	102,427	$	3,543	$	(207)	$	105,763	Total	$	269,783	$	2,303	$	(4,267)	$	267,819

There were no investment securities HTM at September 30, ~~2021~~2022 or December 31, ~~2020. There~~2021. Investment securities AFS with carrying amounts of $434 thousand and $608 thousand were ~~no investment securities~~ pledged as collateral for public unit deposits or for other purposes as required or permitted by law at September 30, ~~2021 or~~2022 and December 31, ~~2020.~~2021, respectively.

~~Union Bankshares, Inc. Page 11~~

The amortized cost and estimated fair value of debt securities by contractual scheduled maturity as of September 30, ~~2021~~2022 were as follows:


		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Available-for-sale	Available-for-sale	(Dollars in thousands)				Available-for-sale	(Dollars in thousands)

Due in one year or less						Due in one year or less	$	5	$	5
Due from one to five years	Due from one to five years	$	12,036	$	12,343	Due from one to five years	16,620		15,161
Due from five to ten years	Due from five to ten years	34,173		34,634		Due from five to ten years	33,011		28,740
Due after ten years	Due after ten years	19,151		19,826		Due after ten years	45,397		35,370
		65,360		66,803			95,033		79,276
Agency mortgage-backed	Agency mortgage-backed	119,082		117,401		Agency mortgage-backed	196,908		160,845
Total debt securities available-for-sale	Total debt securities available-for-sale	$	184,442	$	184,204	Total debt securities available-for-sale	$	291,941	$	240,121

Actual maturities may differ for certain debt securities that may be called by the issuer prior to the contractual maturity. Actual maturities usually differ from contractual maturities on agency MBS because the mortgages underlying the securities may be prepaid, usually without any penalties. Therefore, these agency MBS are shown separately and are not included in the contractual maturity categories in the above maturity summary.

Union Bankshares, Inc. Page 10

Information pertaining to all debt securities AFS with gross unrealized losses as of the balance sheet dates, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:


September 30, 2021		Less Than 12 Months					12 Months and over					Total
September 30, 2022																	September 30, 2022	Less Than 12 Months					12 Months and over					Total
		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
			(Dollars in thousands)																(Dollars in thousands)

U.S. Government- sponsored enterprises	U.S. Government- sponsored enterprises	13	$	25,613	$	(277)	12	$	1,080	$	(26)	25	$	26,693	$	(303)	U.S. Government- sponsored enterprises	10	$	10,585	$	(1,427)	24	$	25,520	$	(4,507)	34	$	36,105	$	(5,934)
Agency mortgage-backed	Agency mortgage-backed	43	99,243		(2,345)		1	1,799		(106)		44	101,042		(2,451)		Agency mortgage-backed	48	82,858		(15,176)		45	77,987		(20,887)		93	160,845		(36,063)
State and political subdivisions	State and political subdivisions	3	2,139		(38)		—	—		—		3	2,139		(38)		State and political subdivisions	67	32,606		(9,237)		1	710		(360)		68	33,316		(9,597)
Corporate	Corporate	1	499		(1)		1	491		(9)		2	990		(10)		Corporate	10	4,681		(157)		3	1,404		(97)		13	6,085		(254)

Total	Total	60	$	127,494	$	(2,661)	14	$	3,370	$	(141)	74	$	130,864	$	(2,802)	Total	135	$	130,730	$	(25,997)	73	$	105,621	$	(25,851)	208	$	236,351	$	(51,848)


December 31, 2020		Less Than 12 Months					12 Months and over					Total
December 31, 2021																	December 31, 2021	Less Than 12 Months					12 Months and over					Total
		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses
			(Dollars in thousands)																(Dollars in thousands)

U.S. Government- sponsored enterprises	U.S. Government- sponsored enterprises	15	$	2,005	$	(16)	8	$	1,661	$	(35)	23	$	3,666	$	(51)	U.S. Government- sponsored enterprises	18	$	29,754	$	(464)	14	$	3,885	$	(129)	32	$	33,639	$	(593)
Agency mortgage-backed	Agency mortgage-backed	19	21,698		(78)		—	—		—		19	21,698		(78)		Agency mortgage-backed	41	130,742		(2,252)		17	32,955		(1,288)		58	163,697		(3,540)
State and political subdivisions	State and political subdivisions	1	575		(3)		—	—		—		1	575		(3)		State and political subdivisions	17	17,483		(107)		—	—		—		17	17,483		(107)
Corporate	Corporate	—	—		—		3	1,424		(75)		3	1,424		(75)		Corporate	2	985		(15)		1	488		(12)		3	1,473		(27)

Total	Total	35	$	24,278	$	(97)	11	$	3,085	$	(110)	46	$	27,363	$	(207)	Total	78	$	178,964	$	(2,838)	32	$	37,328	$	(1,429)	110	$	216,292	$	(4,267)

The Company evaluates all investment securities on a quarterly basis, and more frequently when economic conditions warrant, to determine if an OTTI exists. A security is considered impaired if the fair value is lower than its amortized cost basis at the report date. If impaired, management then assesses whether the unrealized loss is OTT.

An unrealized loss on a debt security is generally deemed to be OTT and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. The credit loss component of OTTI write-down is recorded, net of tax effect, through net income as a component of net OTTI losses in the consolidated statements of income, while the remaining portion of the impairment loss is recognized in OCI, provided the Company does not intend to sell the underlying debt security and it is "more likely than not" that the Company will not have to sell the debt security prior to recovery.

~~Union Bankshares, Inc. Page 12~~

Management considers the following factors in determining whether OTTI exists and the period over which the security is expected to recover:

•The length of time, and extent to which, the fair value has been less than the amortized cost;

•Adverse conditions specifically related to the security, industry, or geographic area;

•The historical and implied volatility of the fair value of the security;

•The payment structure of the debt security and the likelihood of the issuer being able to make payments that may increase in the future;

•Failure of the issuer of the security to make scheduled interest or principal payments;

•Any changes to the rating of the security by a rating agency;

•Recoveries or additional declines in fair value subsequent to the balance sheet date; and

•The nature of the issuer, including whether it is a private company, public entity or government-sponsored enterprise, and the existence or likelihood of any government or third party guaranty.

The Company has the ability to hold the investment securities that had unrealized losses at September 30, ~~2021~~2022 and December 31, ~~2020~~2021 for the foreseeable future. The decline in value is the result of market conditions and not attributable to credit quality in the investment securities and no declines were deemed by management to be OTT.

Union Bankshares, Inc. Page 11

The following table presents the proceeds from sales and calls resulting in gross realized gains and gross realized losses from the ~~sales~~disposition of AFS securities:


		For The Three Months Ended September 30,				For The Nine Months Ended September 30,					For The Three Months Ended September 30,				For The Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(Dollars in thousands)									(Dollars in thousands)
Proceeds		$	8,718	$	—	$	8,718	$	3,076
Proceeds from sales										Proceeds from sales	$	—	$	8,718	$	6,827	$	8,718
Proceeds from calls										Proceeds from calls	—		—		502		—

Gross gains	Gross gains	27		—		27		32		Gross gains	—		27		81		27
Gross losses	Gross losses	(57)		—		(57)		(21)		Gross losses	—		(57)		(50)		(57)
Net (losses) gains on sales of investment securities AFS	Net (losses) gains on sales of investment securities AFS	$	(30)	$	—	$	(30)	$	11	Net (losses) gains on sales of investment securities AFS	$	—	$	(30)	$	31	$	(30)

Note 7.6. Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their unpaid principal balances, adjusted for any charge-offs, the ALL, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

Loan interest income is accrued daily on outstanding balances. The following accounting policies, related to accrual and nonaccrual loans, apply to all portfolio segments and loan classes, which the Company considers to be the same. The accrual of interest is normally discontinued when a loan is specifically determined to be impaired and/or management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. Generally, any unpaid interest previously accrued on those loans is reversed against current period interest income. A loan may be restored to accrual status when its financial status has significantly improved and there is no principal or interest past due. A loan may also be restored to accrual status if the borrower makes six consecutive monthly payments or the lump sum equivalent. Income on nonaccrual loans is generally not recognized unless a loan is returned to accrual status or after all principal has been collected. Interest income generally is not recognized on impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are generally applied as a reduction of the loan principal balance. Delinquency status is determined based on contractual terms for all portfolio segments and loan classes. Loans past due 30 days or more are considered delinquent. Loans are considered in process of foreclosure when a judgment of foreclosure has been issued by the court.

Loan origination fees and direct loan origination costs are deferred and amortized as an adjustment of the related loan's yield using methods that approximate the interest method. The Company generally amortizes these amounts over the estimated average life of the related loans.

~~Union Bankshares, Inc. Page 13~~

The composition of Net loans as of the balance sheet dates was as follows:


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
		(Dollars in thousands)					(Dollars in thousands)
Residential real estate	Residential real estate	$	225,797	$	183,166	Residential real estate	$	326,769	$	246,827
Construction real estate	Construction real estate	73,845		57,417		Construction real estate	98,989		65,149
Commercial real estate	Commercial real estate	322,212		320,627		Commercial real estate	377,458		344,816
Commercial	Commercial	64,156		108,861		Commercial	42,228		49,788
Consumer	Consumer	2,614		2,601		Consumer	2,129		2,376
Municipal	Municipal	83,562		98,497		Municipal	90,475		78,094
Gross loans	Gross loans	772,186		771,169		Gross loans	938,048		787,050
Allowance for loan losses	Allowance for loan losses	(8,561)		(8,271)		Allowance for loan losses	(8,340)		(8,336)
Net deferred loan fees		36		(146)
Net deferred loan costs						Net deferred loan costs	1,304		705
Net loans	Net loans	$	763,661	$	762,752	Net loans	$	931,012	$	779,419

There were ~~384~~11 and ~~679~~154 PPP loans totaling ~~$28.2 million~~$958 thousand and ~~$66.2~~$13.6 million classified as commercial loans as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. ~~Deferred origination fees received from the SBA on these PPP loans totaled $1.5 million and $2.4 million at~~As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were PPP deferred origination fees of $32 thousand and $558 thousand, respectively, ~~and will~~remaining to be amortized into interest income in future

Union Bankshares, Inc. Page 12

periods, over the ~~respective~~ lives of the respective loans. PPP loan origination fees of ~~$675~~$98 thousand and ~~$2.1 million~~$526 thousand were recognized in earnings during the three and nine months ended September 30, ~~2021,~~2022, respectively and ~~$311~~$675 thousand and ~~$545 thousand was~~$2.1 million were recognized during the three and nine months ended September 30, ~~2020,~~2021, respectively.

Qualifying residential first mortgage loans and certain commercial real estate loans with an aggregate carrying value of ~~$225.5~~$271.6 million and ~~$210.0~~$224.4 million were pledged as collateral for borrowings from the FHLB under a blanket lien at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

A summary of current, past due and nonaccrual loans as of the balance sheet dates follows:


September 30, 2021		Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
September 30, 2022														September 30, 2022	Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
		(Dollars in thousands)													(Dollars in thousands)
Residential real estate	Residential real estate	$	224,507	$	138	$	166	$	43	$	943	$	225,797	Residential real estate	$	325,444	$	25	$	887	$	308	$	105	$	326,769
Construction real estate	Construction real estate	73,565		142		—		—		138		73,845		Construction real estate	98,936		—		43		—		10		98,989
Commercial real estate	Commercial real estate	317,136		—		490		—		4,586		322,212		Commercial real estate	374,242		1,950		—		—		1,266		377,458
Commercial	Commercial	63,721		435		—		—		—		64,156		Commercial	41,762		241		225		—		—		42,228
Consumer	Consumer	2,610		4		—		—		—		2,614		Consumer	2,129		—		—		—		—		2,129
Municipal	Municipal	83,562		—		—		—		—		83,562		Municipal	90,475		—		—		—		—		90,475
Total	Total	$	765,101	$	719	$	656	$	43	$	5,667	$	772,186	Total	$	932,988	$	2,216	$	1,155	$	308	$	1,381	$	938,048


December 31, 2020		Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
December 31, 2021														December 31, 2021	Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
		(Dollars in thousands)													(Dollars in thousands)
Residential real estate	Residential real estate	$	179,794	$	2,166	$	211	$	368	$	627	$	183,166	Residential real estate	$	245,169	$	1,328	$	130	$	53	$	147	$	246,827
Construction real estate	Construction real estate	57,116		70		67		143		21		57,417		Construction real estate	64,939		72		—		—		138		65,149
Commercial real estate	Commercial real estate	317,748		1,130		—		—		1,749		320,627		Commercial real estate	340,209		242		—		—		4,365		344,816
Commercial	Commercial	108,749		99		—		—		13		108,861		Commercial	49,699		36		8		45		—		49,788
Consumer	Consumer	2,595		6		—		—		—		2,601		Consumer	2,376		—		—		—		—		2,376
Municipal	Municipal	98,497		—		—		—		—		98,497		Municipal	78,094		—		—		—		—		78,094
Total	Total	$	764,499	$	3,471	$	278	$	511	$	2,410	$	771,169	Total	$	780,486	$	1,678	$	138	$	98	$	4,650	$	787,050

There ~~were~~was one residential real estate loan totaling $28 thousand in process of foreclosure at September 30, 2022 and no loans in process of foreclosure at ~~September 30, 2021 and~~ December 31, ~~2020. A moratorium on residential mortgage foreclosures instituted by the State of Vermont in April 2020 related to the COVID-19 pandemic was lifted effective~~

~~Union Bankshares, Inc. Page 14~~

~~July 15,~~ 2021. Aggregate interest on nonaccrual loans not recognized was ~~$492~~$463 thousand as of September 30, ~~2021~~2022 and ~~$420~~$504 thousand as of December 31, ~~2020.~~2021.

Note 8.7. Allowance for Loan Losses and Credit Quality

The ALL is established for estimated losses in the loan portfolio through a provision for loan losses charged to earnings. For all loan classes, loan losses are charged against the ALL when management believes the loan balance is uncollectible or in accordance with federal guidelines. Subsequent recoveries, if any, are credited to the ALL.

The ALL is maintained at a level believed by management to be appropriate to absorb probable credit losses inherent in the loan portfolio as of the balance sheet date. The amount of the ALL is based on management's periodic evaluation of the collectability of the loan portfolio, including the nature, volume and risk characteristics of the portfolio, credit concentrations, trends in historical loss experience, estimated value of any underlying collateral, specific impaired loans and economic conditions. There was no change to the methodology used to estimate the ALL during the third quarter of ~~2021.~~2022. While management uses available information to recognize losses on loans, future additions to the ALL may be necessary based on changes in economic conditions or other relevant factors.

In addition, various regulatory agencies, as an integral part of their examination process, regularly review the Company's ALL. Such agencies may require the Company to recognize additions to the ALL, with a corresponding charge to earnings, based on their judgments about information available to them at the time of their examination, which may not be currently available to management.

Union Bankshares, Inc. Page 13

The ALL consists of specific, general and unallocated components. The specific component relates to the loans that are classified as impaired. Loans are evaluated for impairment and may be classified as impaired when management believes it is probable that the Company will not collect all the contractual interest and principal payments as scheduled in the loan agreement. Impaired loans may also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that would otherwise not be granted. A TDR classification may result from the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan's terms (such as reduction of stated interest rates below market rates, extension of maturity that does not conform to the Company's policies, reduction of the face amount of the loan, reduction of accrued interest, or reduction or deferment of loan payments), or a combination. A specific reserve amount is allocated to the ALL for individual loans that have been classified as impaired based on management's estimate of the fair value of the collateral for collateral dependent loans, an observable market price, or the present value of anticipated future cash flows. The Company accounts for the change in present value attributable to the passage of time in the loan loss reserve. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer, real estate or small balance commercial loans for impairment evaluation, unless such loans are subject to a restructuring agreement or have been identified as impaired as part of a larger customer relationship. Based on an evaluation of the Company's historical loss experience on substandard commercial loans, management has established the commercial loan threshold for individual impairment evaluation as commercial loan relationships with aggregate balances greater than $500 thousand.

The general component represents the level of ALL allocable to each loan portfolio segment with similar risk characteristics and is determined based on historical loss experience, adjusted for qualitative factors, for each class of loan. Management deems a five year average to be an appropriate time frame on which to base historical losses for each portfolio segment. Qualitative factors considered include underwriting, economic and market conditions, portfolio composition, collateral values, delinquencies, lender experience and legal issues. The qualitative factors are determined based on the various risk characteristics of each portfolio segment. Risk characteristics relevant to each portfolio segment are as follows:

•Residential real estate - Loans in this segment are collateralized by owner-occupied 1-4 family residential real estate, second and vacation homes, 1-4 family investment properties, home equity and second mortgage loans. Repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, could have an effect on the credit quality of this segment.

•Construction real estate - Loans in this segment include residential and commercial construction properties, commercial real estate development loans (while in the construction phase of the projects), land and land development loans. Repayment is dependent on the credit quality of the individual borrower and/or the underlying cash flows generated by the properties being constructed. The overall health of the economy, including unemployment rates, housing prices, vacancy rates and material costs, could have an effect on the credit quality of this segment.

~~Union Bankshares, Inc. Page 15~~

•Commercial real estate - Loans in this segment are primarily properties occupied by businesses or income-producing properties. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by a general slowdown in business or increased vacancy rates which, in turn, could have an effect on the credit quality of this segment. Management requests business financial statements at least annually and monitors the cash flows of these loans.

•Commercial - Loans in this segment are made to businesses and are generally secured by non-real estate assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer or business spending, could have an effect on the credit quality of this segment.

•Consumer - Loans in this segment are made to individuals for personal expenditures, such as an automobile purchase, and include unsecured loans. Repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment, could have an effect on the credit quality of this segment.

•Municipal - Loans in this segment are made to municipalities located within the Company's service area. Repayment is primarily dependent on taxes or other funds collected by the municipalities. Management considers there to be minimal risk surrounding the credit quality of this segment.

Management increased certain economic qualitative factors utilized to estimate the ALL during ~~the first nine months of~~ 2020 at the onset of the COVID-19 pandemic. ~~Due~~During 2021, the economic qualitative reserve factor assigned to each loan portfolio in the ALL estimate was decreased due to continued indications of economic ~~improvement~~improvement. COVID-19 restrictions were lifted in June 2021 and ~~with~~ the majority of borrowers that had executed loan modifications due to COVID-19 were no longer subject to modified ~~terms,~~terms. Based on these continued improving economic trends, the economic qualitative reserve factor assigned to all loan portfolios, except the ~~commercial, commercial real estate, residential, junior lien, consumer and~~ municipal loan ~~portfolios~~portfolio, was decreased 5 bps during each of the first, second and third ~~quarter~~quarters of ~~2021.~~2022.

Union Bankshares, Inc. Page 14

An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the ALL reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

All evaluations are inherently subjective as they require estimates that are susceptible to significant revision as more information becomes available or as changes occur in economic conditions or other relevant factors. Despite the allocation shown in the tables below, the ALL is general in nature and is available to absorb losses from any class of loan.

Changes in the ALL, by class of loans, for the three and nine months ended September 30, ~~2021~~2022 and ~~2020~~2021 were as follows:


For The Three Months Ended September 30, 2021		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
For The Three Months Ended September 30, 2022																		For The Three Months Ended September 30, 2022	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
		(Dollars in thousands)																	(Dollars in thousands)
Balance, June 30, 2021		$	2,082	$	1,024	$	4,111	$	425	$	12	$	81	$	770	$	8,505
Balance, June 30, 2022																		Balance, June 30, 2022	$	2,239	$	957	$	4,004	$	318	$	10	$	27	$	785	$	8,340
Provision (credit) for loan losses	Provision (credit) for loan losses	(80)		(24)		(96)		(90)		3		56		231		—		Provision (credit) for loan losses	7		151		(85)		(8)		—		71		(136)		—
Recoveries of amounts charged off	Recoveries of amounts charged off	58		—		—		—		—		—		—		58		Recoveries of amounts charged off	—		—		—		—		—		—		—		—
		2,060		1,000		4,015		335		15		137		1,001		8,563			2,246		1,108		3,919		310		10		98		649		8,340
Amounts charged off	Amounts charged off	—		—		—		—		(2)		—		—		(2)		Amounts charged off	—		—		—		—		—		—		—		—
Balance, September 30, 2021		$	2,060	$	1,000	$	4,015	$	335	$	13	$	137	$	1,001	$	8,561
Balance, September 30, 2022																		Balance, September 30, 2022	$	2,246	$	1,108	$	3,919	$	310	$	10	$	98	$	649	$	8,340


For The Three Months Ended September 30, 2020		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
For The Three Months Ended September 30, 2021																		For The Three Months Ended September 30, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
		(Dollars in thousands)																	(Dollars in thousands)
Balance, June 30, 2020		$	1,590	$	594	$	3,832	$	491	$	23	$	79	$	279	$	6,888
Balance, June 30, 2021																		Balance, June 30, 2021	$	2,082	$	1,024	$	4,111	$	425	$	12	$	81	$	770	$	8,505
Provision (credit) for loan losses	Provision (credit) for loan losses	5		75		313		1		(4)		133		277		800		Provision (credit) for loan losses	(80)		(24)		(96)		(90)		3		56		231		—
Recoveries of amounts charged off	Recoveries of amounts charged off	5		—		—		—		1		—		—		6		Recoveries of amounts charged off	58		—		—		—		—		—		—		58
		1,600		669		4,145		492		20		212		556		7,694			2,060		1,000		4,015		335		15		137		1,001		8,563
Amounts charged off	Amounts charged off	—		—		—		—		(3)		—		—		(3)		Amounts charged off	—		—		—		—		(2)		—		—		(2)
Balance, September 30, 2020		$	1,600	$	669	$	4,145	$	492	$	17	$	212	$	556	$	7,691
Balance, September 30, 2021																		Balance, September 30, 2021	$	2,060	$	1,000	$	4,015	$	335	$	13	$	137	$	1,001	$	8,561



For The Nine Months Ended September 30, 2022	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
	(Dollars in thousands)
Balance, December 31, 2021	$	2,068	$	837	$	4,122	$	275	$	11	$	86	$	937	$	8,336
Provision (credit) for loan losses	178		271		(203)		34		(4)		12		(288)		—
Recoveries of amounts charged off	—		—		—		2		4		—		—		6
	2,246		1,108		3,919		311		11		98		649		8,342
Amounts charged off	—		—		—		(1)		(1)		—		—		(2)
Balance, September 30, 2022	$	2,246	$	1,108	$	3,919	$	310	$	10	$	98	$	649	$	8,340

Union Bankshares, Inc. Page 1615



For The Nine Months Ended September 30, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
	(Dollars in thousands)
Balance, December 31, 2020	$	1,776	$	763	$	4,199	$	458	$	15	$	214	$	846	$	8,271
Provision (credit) for loan losses	218		237		(184)		(123)		(1)		(77)		155		225
Recoveries of amounts charged off	66		—		—		—		1		—		—		67
	2,060		1,000		4,015		335		15		137		1,001		8,563
Amounts charged off	—		—		—		—		(2)		—		—		(2)
Balance, September 30, 2021	$	2,060	$	1,000	$	4,015	$	335	$	13	$	137	$	1,001	$	8,561

For The Nine Months Ended September 30, 2020 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(Dollars in thousands)
Balance, December 31, 2019 $ 1,392 $ 774 $ 3,178 $ 394 $ 23 $ 76 $ 285 $ 6,122
Provision (credit) for loan
losses 180 (105) 1,021 98 (1) 136 271 1,600
Recoveries of amounts
charged off 28 — — — 1 — — 29
1,600 669 4,199 492 23 212 556 7,751
Amounts charged off — — (54) — (6) — — (60)
Balance, September 30, 2020 $ 1,600 $ 669 $ 4,145 $ 492 $ 17 $ 212 $ 556 $ 7,691

The allocation of the ALL, summarized on the basis of the Company's impairment methodology by class of loan, as of the balance sheet dates, was as follows:


September 30, 2021		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
September 30, 2022																		September 30, 2022	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
		(Dollars in thousands)																	(Dollars in thousands)
Individually evaluated for impairment	Individually evaluated for impairment	$	26	$	—	$	20	$	—	$	—	$	—	$	—	$	46	Individually evaluated for impairment	$	22	$	—	$	—	$	—	$	—	$	—	$	—	$	22
Collectively evaluated for impairment	Collectively evaluated for impairment	2,034		1,000		3,995		335		13		137		1,001		8,515		Collectively evaluated for impairment	2,224		1,108		3,919		310		10		98		649		8,318
Total allocated	Total allocated	$	2,060	$	1,000	$	4,015	$	335	$	13	$	137	$	1,001	$	8,561	Total allocated	$	2,246	$	1,108	$	3,919	$	310	$	10	$	98	$	649	$	8,340


December 31, 2020		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
December 31, 2021																		December 31, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
		(Dollars in thousands)																	(Dollars in thousands)
Individually evaluated for impairment	Individually evaluated for impairment	$	30	$	—	$	21	$	7	$	—	$	—	$	—	$	58	Individually evaluated for impairment	$	26	$	—	$	20	$	—	$	—	$	—	$	—	$	46
Collectively evaluated for impairment	Collectively evaluated for impairment	1,746		763		4,178		451		15		214		846		8,213		Collectively evaluated for impairment	2,042		837		4,102		275		11		86		937		8,290
Total allocated	Total allocated	$	1,776	$	763	$	4,199	$	458	$	15	$	214	$	846	$	8,271	Total allocated	$	2,068	$	837	$	4,122	$	275	$	11	$	86	$	937	$	8,336

The recorded investment in loans, summarized on the basis of the Company's impairment methodology by class of loan, as of the balance sheet dates, was as follows:


September 30, 2021		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
September 30, 2022																September 30, 2022	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
		(Dollars in thousands)															(Dollars in thousands)
Individually evaluated for impairment	Individually evaluated for impairment	$	1,773	$	199	$	4,979	$	10	$	—	$	—	$	6,961	Individually evaluated for impairment	$	1,512	$	64	$	8,018	$	7	$	—	$	—	$	9,601
Collectively evaluated for impairment	Collectively evaluated for impairment	224,024		73,646		317,233		64,146		2,614		83,562		765,225		Collectively evaluated for impairment	325,257		98,925		369,440		42,221		2,129		90,475		928,447

Total	Total	$	225,797	$	73,845	$	322,212	$	64,156	$	2,614	$	83,562	$	772,186	Total	$	326,769	$	98,989	$	377,458	$	42,228	$	2,129	$	90,475	$	938,048


December 31, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Individually evaluated for impairment	$	1,750	$	198	$	4,819	$	9	$	—	$	—	$	6,776
Collectively evaluated for impairment	245,077		64,951		339,997		49,779		2,376		78,094		780,274


Total	$	246,827	$	65,149	$	344,816	$	49,788	$	2,376	$	78,094	$	787,050

Union Bankshares, Inc. Page 1716

December 31, 2020 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Total
(Dollars in thousands)
Individually evaluated
for impairment $ 1,782 $ 210 $ 2,422 $ 207 $ — $ — $ 4,621
Collectively evaluated
for impairment 181,384 57,207 318,205 108,654 2,601 98,497 766,548
Total $ 183,166 $ 57,417 $ 320,627 $ 108,861 $ 2,601 $ 98,497 $ 771,169

Risk and collateral ratings are assigned to loans and are subject to ongoing monitoring by lending and credit personnel with such ratings updated annually or more frequently if warranted. The following is an overview of the Company's loan rating system:

1-3 Rating - Pass

Risk-rating grades "1" through "3" comprise those loans ranging from those with lower than average credit risk, defined as borrowers with high liquidity, excellent financial condition, strong management, favorable industry trends or loans secured by highly liquid assets, through those with marginal credit risk, defined as borrowers that, while creditworthy, exhibit some characteristics requiring special attention by the account officer.

4-4.5 Rating - Satisfactory/Monitor

Borrowers exhibit potential credit weaknesses or downward trends warranting management's attention. While potentially weak, these borrowers are currently marginally acceptable; no loss of principal or interest is envisioned. When warranted, these credits may be monitored on the watch list.

5-7 Rating - Substandard

Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. The loan may be inadequately protected by the net worth and paying capacity of the obligor and/or the underlying collateral is inadequate.

The following tables summarize the loan ratings applied by management to the Company's loans by class as of the balance sheet dates:


September 30, 2021		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
September 30, 2022																September 30, 2022	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
		(Dollars in thousands)															(Dollars in thousands)
Pass	Pass	$	205,820	$	48,922	$	161,148	$	58,336	$	2,608	$	83,562	$	560,396	Pass	$	302,894	$	47,839	$	258,646	$	37,648	$	2,125	$	90,475	$	739,627
Satisfactory/Monitor	Satisfactory/Monitor	16,833		24,724		155,244		5,290		6		—		202,097		Satisfactory/Monitor	21,660		51,086		109,948		4,304		4		—		187,002
Substandard	Substandard	3,144		199		5,820		530		—		—		9,693		Substandard	2,215		64		8,864		276		—		—		11,419

Total	Total	$	225,797	$	73,845	$	322,212	$	64,156	$	2,614	$	83,562	$	772,186	Total	$	326,769	$	98,989	$	377,458	$	42,228	$	2,129	$	90,475	$	938,048


December 31, 2020		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
December 31, 2021																December 31, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
		(Dollars in thousands)															(Dollars in thousands)
Pass	Pass	$	166,119	$	42,853	$	172,048	$	98,314	$	2,595	$	98,497	$	580,426	Pass	$	227,684	$	39,135	$	191,902	$	45,407	$	2,371	$	78,094	$	584,593
Satisfactory/Monitor	Satisfactory/Monitor	13,756		14,319		144,784		10,116		6		—		182,981		Satisfactory/Monitor	16,820		25,816		147,645		4,301		5		—		194,587
Substandard	Substandard	3,291		245		3,795		431		—		—		7,762		Substandard	2,323		198		5,269		80		—		—		7,870

Total	Total	$	183,166	$	57,417	$	320,627	$	108,861	$	2,601	$	98,497	$	771,169	Total	$	246,827	$	65,149	$	344,816	$	49,788	$	2,376	$	78,094	$	787,050

Union Bankshares, Inc. Page 1817

The following tables provide information with respect to impaired loans by class of loan as of and for the three and nine months ended September 30, ~~2021~~2022 and September 30, ~~2020:~~2021:


		As of September 30, 2021						For The Three Months Ended September 30, 2021				For the Nine Months Ended September 30, 2021					As of September 30, 2022						For The Three Months Ended September 30, 2022				For the Nine Months Ended September 30, 2022
		Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized			Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
		(Dollars in thousands)															(Dollars in thousands)
Residential real estate	Residential real estate	$	201	$	211	$	26									Residential real estate	$	192	$	202	$	22

Commercial real estate		1,596		1,766		20

With an allowance recorded	With an allowance recorded	1,797		1,977		46										With an allowance recorded	192		202		22

Residential real estate	Residential real estate	1,572		2,056		—										Residential real estate	1,320		1,815		—
Construction real estate	Construction real estate	199		220		—										Construction real estate	64		89		—
Commercial real estate	Commercial real estate	3,383		3,402		—										Commercial real estate	8,018		8,530		—
Commercial	Commercial	10		12		—										Commercial	7		7		—
With no allowance recorded	With no allowance recorded	5,164		5,690		—										With no allowance recorded	9,409		10,441		—

Residential real estate	Residential real estate	1,773		2,267		26		$	1,732	$	95	$	1,746	$	172	Residential real estate	1,512		2,017		22		$	1,450	$	17	$	1,595	$	77
Construction real estate	Construction real estate	199		220		—		203		1		207		3		Construction real estate	64		89		—		67		1		131		26
Commercial real estate	Commercial real estate	4,979		5,168		20		5,122		149		4,485		187		Commercial real estate	8,018		8,530		—		5,877		73		5,293		107
Commercial	Commercial	10		12		—		11		—		100		6		Commercial	7		7		—		8		—		8		—
Total	Total	$	6,961	$	7,667	$	46	$	7,068	$	245	$	6,538	$	368	Total	$	9,601	$	10,643	$	22	$	7,402	$	91	$	7,027	$	210

____________________

(1)Does not reflect government guaranties on impaired loans as of September 30, 2022 totaling $344 thousand.


	As of September 30, 2021						For The Three Months Ended September 30, 2021				For the Nine Months Ended September 30, 2021
	Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Residential real estate	$	1,773	$	2,267	$	26	$	1,732	$	95	$	1,746	$	172
Construction real estate	199		220		—		203		1		207		3
Commercial real estate	4,979		5,168		20		5,122		149		4,485		187
Commercial	10		12		—		11		—		100		6
Total	$	6,961	$	7,667	$	46	$	7,068	$	245	$	6,538	$	368

____________________

(1)Does not reflect government guaranties on impaired loans as of September 30, 2021 totaling $350 thousand.

As of September 30, 2020 For The Three Months Ended September 30, 2020 For the Nine Months Ended September 30, 2020
Recorded Investment
(1) Principal Balance
(1) Related Allowance Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(Dollars in thousands)
Residential real estate $ 1,805 $ 2,413 $ 33 $ 1,882 $ 19 $ 1,692 $ 47
Construction real estate 212 233 — 215 1 218 3
Commercial real estate 3,018 3,245 36 3,051 26 3,116 64
Commercial 229 233 7 240 4 264 16
Total $ 5,264 $ 6,124 $ 76 $ 5,388 $ 50 $ 5,290 $ 130

~~____________________~~

~~(1)Does not reflect government guaranties on impaired loans as of September 30, 2020 totaling $535 thousand.~~

Union Bankshares, Inc. Page 1918

The following table provides information with respect to impaired loans by class of loan as of December 31, ~~2020:~~2021:


		December 31, 2020							December 31, 2021
		Recorded Investment (1)		Principal Balance (1)		Related Allowance			Recorded Investment (1)		Principal Balance (1)		Related Allowance
		(Dollars in thousands)							(Dollars in thousands)
Residential real estate	Residential real estate	$	208	$	218	$	30	Residential real estate	$	199	$	209	$	26

Commercial real estate	Commercial real estate	1,634		1,774		21		Commercial real estate	1,591		1,764		20
Commercial		9		11		7

With an allowance recorded	With an allowance recorded	1,851		2,003		58		With an allowance recorded	1,790		1,973		46

Residential real estate	Residential real estate	1,574		2,182		—		Residential real estate	1,551		2,043		—
Construction real estate	Construction real estate	210		231		—		Construction real estate	198		218		—
Commercial real estate	Commercial real estate	788		890		—		Commercial real estate	3,228		3,274		—
Commercial	Commercial	198		200		—		Commercial	9		9		—
With no allowance recorded	With no allowance recorded	2,770		3,503		—		With no allowance recorded	4,986		5,544		—

Residential real estate	Residential real estate	1,782		2,400		30		Residential real estate	1,750		2,252		26
Construction real estate	Construction real estate	210		231		—		Construction real estate	198		218		—
Commercial real estate	Commercial real estate	2,422		2,664		21		Commercial real estate	4,819		5,038		20
Commercial	Commercial	207		211		7		Commercial	9		9		—
Total	Total	$	4,621	$	5,506	$	58	Total	$	6,776	$	7,517	$	46

____________________

(1)Does not reflect government guaranties on impaired loans as of December 31, ~~2020~~2021 totaling ~~$514~~$423 thousand.

The following is a summary of TDR loans by class of loan as of the balance sheet dates:


		September 30, 2021			December 31, 2020				September 30, 2022			December 31, 2021
		Number of Loans	Principal Balance		Number of Loans	Principal Balance			Number of Loans	Principal Balance		Number of Loans	Principal Balance
		(Dollars in thousands)							(Dollars in thousands)
Residential real estate	Residential real estate	29	$	1,773	32	$	1,782	Residential real estate	25	$	1,512	29	$	1,750
Construction real estate	Construction real estate	2	82		2	87		Construction real estate	2	64		2	81
Commercial real estate	Commercial real estate	4	487		6	788		Commercial real estate	1	174		3	375
Commercial	Commercial	2	10		5	207		Commercial	1	7		1	9
Total	Total	37	$	2,352	45	$	2,864	Total	29	$	1,757	35	$	2,215

The TDR loans above represent loan modifications in which a concession was provided to the borrower, including due date extensions, maturity date extensions, interest rate reductions or the forgiveness of accrued interest. Troubled loans that are restructured and meet established thresholds are classified as impaired and a specific reserve amount is allocated to the ALL on the basis of the fair value of the collateral for collateral dependent loans, an observable market price, or the present value of anticipated future cash flows.

~~The following tables provides~~There was no new TDR activity for the three and nine months ended September 30, ~~2021~~2022. The following table provides new TDRs for the three and ~~2020:~~nine months ended September 30, 2021.



	New TDRs During the					New TDRs During the
	Three Months Ended September 30, 2021					Nine Months Ended September 30, 2021
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Residential real estate	2	$	445	$	445		2	$	445	$	445

Union Bankshares, Inc. Page 2019

New TDRs During the New TDRs During the
Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
(Dollars in thousands)
Residential real estate 2 $ 54 $ 56 8 $ 547 $ 549

There were no TDR loans modified within the previous twelve months that subsequently defaulted during the three and nine months ended September 30, ~~2021~~2022 or ~~2020.~~2021. TDR loans are considered defaulted at 90 days past due.

In March 2020, the federal banking agencies issued guidance, confirmed by the FASB, that certain short-term modifications made to loans to borrowers affected by the COVID-19 pandemic and government shutdown orders would not be considered TDRs under specified ~~circumstances (See Notes 2 and 5). Through~~circumstances. As of September 30, 2021, the Company had executed modifications under this guidance on outstanding loan balances of $145.6 million that carried accrued interest of $926 thousand. Of the total modifications executed, outstanding loan balances of $748 thousand2022, no loans remained subject to modified ~~terms and carried accrued interest of $34 thousand as of September 30, 2021. The Company intends to continue to follow the guidance of the banking regulators in making TDR determinations.~~

terms.

At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company was not committed to lend any additional funds to borrowers whose loans were nonperforming, impaired or restructured.

Note 9.8. Stock Based Compensation

Under the Union Bankshares, Inc. 2014 Equity Incentive Plan, ~~50,000~~as amended in May 2022, a total of 150,000 shares of the Company’s common stock ~~were~~have been reserved for equity awards of incentive stock options, nonqualified stock options, restricted stock and RSUs to eligible officers and (except for awards of incentive stock options) nonemployee directors. Shares available for issuance of awards under the 2014 Equity Plan consist of unissued shares of the Company’s common stock and/or shares held in treasury. As of September 30, ~~2021,~~2022, there were outstanding grants of RSUs ~~and incentive stock options~~ under the 2014 Equity Plan ~~with respect to an aggregate of 27,044 shares of common stock.~~as noted in the table below.

RSUs. Each outstanding RSU represents the right to receive 1one share of the Company's common stock upon satisfaction of applicable vesting conditions. The general terms of the awards are described in the Company's ~~2020~~2021 Annual Report. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights.

The following table summarizes the RSUs awarded to Company executives in ~~2019,~~ 2020, 2021 and ~~2021,~~2022, and the number of such RSUs remaining unvested as of September 30, ~~2021:~~2022:


		Number of RSUs Granted	Weighted Average Grant Date Fair Value		Number of Unvested RSUs		Number of RSUs Granted	Weighted Average Grant Date Fair Value		Number of Unvested RSUs
2019 Award		3,734	$	47.75	500
2020 Award	2020 Award	8,918	36.26		5,139	2020 Award	8,918	$	36.26	1,067
2021 Award	2021 Award	17,685	26.73		17,685	2021 Award	17,685	26.73		7,306
2022 Award						2022 Award	15,705	31.99		15,196
Total	Total	30,337			23,324	Total	42,308			23,569

Unrecognized compensation expense related to the unvested RSUs as of September 30, 2022 and 2021 was $422 thousand and $319 thousand, respectively, and ~~was $209~~$317 thousand as of December 31, ~~2020.~~2021.

On May ~~19, 2021,~~18, 2022, the Company's board of directors, as a component of total director compensation, granted an aggregate of ~~1,220~~1,323 RSUs to the Company's non-employee directors. Each RSU represents the right to receive 1one share of the Company's common stock upon satisfaction of applicable vesting conditions. The RSUs will vest in May ~~2022,~~2023, subject to continued board service through the vesting date, other than in the case of the director's death or disability. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights. Unrecognized director compensation expense related to the unvested RSUs as of September 30, ~~2021~~2022 was ~~$27~~$26 thousand.

~~Stock options.~~ As of September 30, 2021, 2,500 incentive stock options granted in December 2014 under the 2014 Equity Plan remained outstanding and exercisable and will expire in December 2021. The intrinsic value of those options was $20 thousand as of September 30, 2021. During the nine months ended September 30, 2021, 2,000 incentive stock options under the 2014

~~Union Bankshares, Inc. Page 21~~

~~Equity Plan were exercised. There was no unrecognized compensation expense related to the remaining options as of September 30, 2021.~~

Note ~~10.~~9. Subordinated ~~Debentures and~~ Notes

In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 (the "Notes") to certain qualified institutional buyers and accredited investors. The Notes ~~will~~ initially bear interest, payable semi-annually, at the rate of 3.25% per annum, until September 1, 2026. From and including September 1, 2026, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month secured overnight financing rate (SOFR) plus 263 basis points. ~~The~~At its option, the Company may ~~at its option,~~redeem the Notes, in whole or in part, beginning with the interest payment date of September 1, 2026 but not generally prior thereto, and on any scheduled interest payment date ~~thereafter, redeem the Notes, in whole or in part.~~thereafter. The Notes ~~have been structured to~~ qualify as Tier 2 capital instruments for the Company under bank regulatory capital guidelines.

The Company used the proceeds primarily to provide additional capital support to the Company's wholly-owned subsidiary, Union Bank, to support growth and for other general corporate purposes.

~~At September 30, 2021, the~~The unamortized issuance costs of the Notes were ~~$336 thousand. For~~$304 thousand and $329 thousand at September 30, 2022 and December 31, 2021, respectively. There were $8 thousand and $25 thousand in issuance costs recorded in interest expense for the three and nine months ended September 30, ~~2021,~~2022, respectively, and $3 thousand ~~in issuance costs were~~ recorded ~~in interest expense.~~for the three and nine months ended September 30, 2021. The Notes are presented net of unamortized issuance costs in the consolidated balance sheets.

Union Bankshares, Inc. Page 20

Note ~~11.~~10. Other Comprehensive ~~Income~~Loss

Accounting principles generally require recognized revenue, expenses, gains and losses be included in net income or loss. Certain changes in assets and liabilities, such as the after tax effect of unrealized gains and losses on investment securities AFS that are not OTTI, are not reflected in the consolidated statements of income. The cumulative effect of such items, net of tax effect, is reported as a separate component of the equity section of the consolidated balance sheets (Accumulated OCI). OCI, along with net income, comprises the Company's total comprehensive income or loss.

As of the balance sheet dates, the components of Accumulated OCI, net of tax, were:

September 30, 2021 December 31, 2020
(Dollars in thousands)
Net unrealized (losses) gains on investment securities AFS $ (188) $ 2,636


	September 30, 2022		December 31, 2021
	(Dollars in thousands)
Net unrealized losses on investment securities AFS	$	(40,938)	$	(1,552)

The following tables disclose the tax effects allocated to each component of OCI for the three and nine months ended September 30:


		Three Months Ended													Three Months Ended
		September 30, 2021						September 30, 2020							September 30, 2022						September 30, 2021
		Before-Tax Amount		Tax Benefit		Net-of-Tax Amount		Before-Tax Amount		Tax Benefit		Net-of-Tax Amount			Before-Tax Amount		Tax Benefit		Net-of-Tax Amount		Before-Tax Amount		Tax Benefit		Net-of-Tax Amount
Investment securities AFS:	Investment securities AFS:	(Dollars in thousands)												Investment securities AFS:	(Dollars in thousands)
Net unrealized holding losses arising during the period on investment securities AFS	Net unrealized holding losses arising during the period on investment securities AFS	$	(1,535)	$	322	$	(1,213)	$	(157)	$	33	$	(124)	Net unrealized holding losses arising during the period on investment securities AFS	$	(15,872)	$	3,333	$	(12,539)	$	(1,535)	$	322	$	(1,213)
Reclassification adjustment for net losses on investment securities AFS realized in net income	Reclassification adjustment for net losses on investment securities AFS realized in net income	30		(6)		24		—		—		—		Reclassification adjustment for net losses on investment securities AFS realized in net income	—		—		—		30		(6)		24

Total other comprehensive loss	Total other comprehensive loss	$	(1,505)	$	316	$	(1,189)	$	(157)	$	33	$	(124)	Total other comprehensive loss	$	(15,872)	$	3,333	$	(12,539)	$	(1,505)	$	316	$	(1,189)



	Nine Months Ended
	September 30, 2022						September 30, 2021
	Before-Tax Amount		Tax Benefit/Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Benefit		Net-of-Tax Amount
Investment securities AFS:	(Dollars in thousands)
Net unrealized holding losses arising during the period on investment securities AFS	$	(49,824)	$	10,463	$	(39,361)	$	(3,604)	$	756	$	(2,848)
Reclassification adjustment for net (gains) losses on investment securities AFS realized in net income	(31)		6		(25)		30		(6)		24






Total other comprehensive loss	$	(49,855)	$	10,469	$	(39,386)	$	(3,574)	$	750	$	(2,824)

Union Bankshares, Inc. Page 2221

Nine Months Ended
September 30, 2021 September 30, 2020
Before-Tax Amount Tax Benefit Net-of-Tax Amount Before-Tax Amount Tax Expense Net-of-Tax Amount
Investment securities AFS: (Dollars in thousands)
Net unrealized holding (losses) gains arising during the period on investment securities AFS $ (3,604) $ 756 $ (2,848) $ 2,045 $ (429) $ 1,616
Reclassification adjustment for net losses (gains) on investment securities AFS realized in net income 30 (6) 24 (11) 2 (9)
Total other comprehensive (loss) income $ (3,574) $ 750 $ (2,824) $ 2,034 $ (427) $ 1,607

The following table discloses information concerning reclassification adjustments from OCI for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


		Three Months Ended				Nine Months Ended						Three Months Ended				Nine Months Ended
Reclassification Adjustment Description	Reclassification Adjustment Description	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		Affected Line Item in Consolidated Statement of Income	Reclassification Adjustment Description	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021		Affected Line Item in Consolidated Statement of Income
		(Dollars in thousands)										(Dollars in thousands)
Investment securities AFS:	Investment securities AFS:										Investment securities AFS:
Net losses (gains) on investment securities AFS	Net losses (gains) on investment securities AFS	30		—		$	30	$	(11)	Net (losses) gains on sales of investment securities available-for-sale	Net losses (gains) on investment securities AFS	—		30		$	(31)	$	30	Net (losses) gains on sales of investment securities available-for-sale
Tax (benefit) expense	Tax (benefit) expense	(6)		—		(6)		2		Provision for income taxes	Tax (benefit) expense	—		(6)		6		(6)		Provision for income taxes

Total reclassifications	Total reclassifications	$	24	$	—	$	24	$	(9)	Net income	Total reclassifications	$	—	$	24	$	(25)	$	24	Net income

Note ~~12.~~11. Fair Value Measurement

The Company utilizes FASB ASC Topic 820, Fair Value Measurement, as guidance for accounting for assets and liabilities carried at fair value. This standard defines fair value as the price that would be received, without adjustment for transaction costs, to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The guidance in FASB ASC Topic 820 establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The three levels of the fair value hierarchy are:

•Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

•Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

•Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following is a description of the valuation methodologies used for the Company’s assets that are measured on a recurring basis at estimated fair value:

Investment securities AFS: ~~The~~Certain U.S. Treasury notes have been valued using unadjusted quoted prices from active markets and therefore have been classified as Level 1. However, the majority of the Company’s AFS securities have been valued utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.

Mutual funds: Mutual funds have been valued using unadjusted quoted prices from active markets and therefore have been classified as Level 1.

Union Bankshares, Inc. Page 2322

Assets measured at fair value on a recurring basis at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, segregated by fair value hierarchy level, are summarized below:


		Fair Value Measurements									Fair Value Measurements
		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2021:		(Dollars in thousands)
September 30, 2022:										September 30, 2022:	(Dollars in thousands)
Debt securities AFS:	Debt securities AFS:									Debt securities AFS:
U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	30,279	$	2,896	$	27,383	$	—	U.S. Government-sponsored enterprises	$	39,348	$	2,523	$	36,825	$	—
Agency mortgage-backed	Agency mortgage-backed	117,401		—		117,401		—		Agency mortgage-backed	160,845		—		160,845		—
State and political subdivisions	State and political subdivisions	28,212		—		28,212		—		State and political subdivisions	33,843		—		33,843		—
Corporate	Corporate	8,312		—		8,312		—		Corporate	6,085		—		6,085		—
Total debt securities	Total debt securities	$	184,204	$	2,896	$	181,308	$	—	Total debt securities	$	240,121	$	2,523	$	237,598	$	—

Other investments:	Other investments:									Other investments:
Mutual funds	Mutual funds	$	1,183	$	1,183	$	—	$	—	Mutual funds	$	1,134	$	1,134	$	—	$	—

December 31, 2020:
December 31, 2021:										December 31, 2021:
Debt securities AFS:	Debt securities AFS:									Debt securities AFS:
U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	6,548	$	—	$	6,548	$	—	U.S. Government-sponsored enterprises	$	36,638	$	2,875	$	33,763	$	—
Agency mortgage-backed	Agency mortgage-backed	62,352		—		62,352		—		Agency mortgage-backed	178,250		—		178,250		—
State and political subdivisions	State and political subdivisions	28,461		—		28,461		—		State and political subdivisions	45,254		—		45,254		—
Corporate	Corporate	8,402		—		8,402		—		Corporate	7,677		—		7,677		—
Total debt securities	Total debt securities	$	105,763	$	—	$	105,763	$	—	Total debt securities	$	267,819	$	2,875	$	264,944	$	—

Other investments:	Other investments:									Other investments:
Mutual funds	Mutual funds	$	1,047	$	1,047	$	—	$	—	Mutual funds	$	1,132	$	1,132	$	—	$	—

There were no transfers in or out of Levels 1 and 2 during the three and nine months ended September 30, ~~2021~~2022 or the year ended December 31, ~~2020,~~2021, nor were there any Level 3 assets at any time during ~~either period.~~these periods. Certain other assets and liabilities are measured at fair value on a nonrecurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis in periods after initial recognition, such as collateral-dependent impaired loans, MSRs and OREO, were not considered material at September 30, ~~2021~~2022 or December 31, ~~2020.~~2021. The Company has not elected to apply the fair value method to any financial assets or liabilities other than those situations where other accounting pronouncements require fair value measurements.

FASB ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of financial instruments. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Management’s estimates and assumptions are inherently subjective and involve uncertainties and matters of significant judgment. Changes in assumptions could dramatically affect the estimated fair values.

Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments may be excluded from disclosure requirements. Thus, the aggregate fair value amounts presented may not necessarily represent the actual underlying fair value of such instruments of the Company.

Union Bankshares, Inc. Page 2423

As of the balance sheet dates, the estimated fair values and related carrying amounts of the Company's significant financial instruments were as follows:


		September 30, 2021											September 30, 2022
		Fair Value Measurements											Fair Value Measurements
		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(Dollars in thousands)											(Dollars in thousands)
Financial assets	Financial assets											Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	120,081	$	120,081	$	120,081	$	—	$	—	Cash and cash equivalents	$	32,141	$	32,141	$	32,141	$	—	$	—
Interest bearing deposits in banks	Interest bearing deposits in banks	12,201		12,203		—		12,203		—		Interest bearing deposits in banks	14,441		14,441		—		14,441		—
Investment securities	Investment securities	185,387		185,387		4,079		181,308		—		Investment securities	241,255		241,255		3,657		237,598		—
Loans held for sale	Loans held for sale	17,821		18,124		—		18,124		—		Loans held for sale	3,143		3,201		—		3,201		—
Loans, net	Loans, net											Loans, net
Residential real estate	Residential real estate	223,748		227,202		—		—		227,202		Residential real estate	324,977		295,825		—		—		295,825
Construction real estate	Construction real estate	72,848		73,098		—		—		73,098		Construction real estate	98,019		97,068		—		—		97,068
Commercial real estate	Commercial real estate	317,211		319,836		—		—		319,836		Commercial real estate	373,415		369,639		—		—		369,639
Commercial	Commercial	63,824		62,986		—		—		62,986		Commercial	41,977		40,464		—		—		40,464
Consumer	Consumer	2,601		2,580		—		—		2,580		Consumer	2,121		2,098		—		—		2,098
Municipal	Municipal	83,429		83,726		—		—		83,726		Municipal	90,503		88,915		—		—		88,915
Accrued interest receivable	Accrued interest receivable	2,998		2,998		—		554		2,444		Accrued interest receivable	3,254		3,254		—		827		2,427
Nonmarketable equity securities	Nonmarketable equity securities	1,164		N/A								Nonmarketable equity securities	1,816		N/A
Financial liabilities	Financial liabilities											Financial liabilities
Deposits	Deposits											Deposits
Noninterest bearing	Noninterest bearing	$	252,940	$	252,940	$	252,940	$	—	$	—	Noninterest bearing	$	337,513	$	337,140	$	337,140	$	—	$	—
Interest bearing	Interest bearing	680,438		680,438		680,438		—		—		Interest bearing	722,208		722,208		722,208		—		—
Time	Time	107,266		107,510		—		107,510		—		Time	136,691		133,348		—		133,348		—
Borrowed funds	Borrowed funds											Borrowed funds
Short-term												Short-term	25,000		24,998		—		24,998		—

Long-term		7,000		7,276		—		7,276		—
Subordinated debentures and notes		16,164		16,164		—		16,164		—
Subordinated notes												Subordinated notes	16,196		13,964		—		13,964		—
Accrued interest payable	Accrued interest payable	105		105		—		105		—		Accrued interest payable	90		90		—		90		—

Union Bankshares, Inc. Page 2524


		December 31, 2020											December 31, 2021
		Fair Value Measurements											Fair Value Measurements
		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(Dollars in thousands)											(Dollars in thousands)
Financial assets	Financial assets											Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	122,771	$	122,771	$	122,771	$	—	$	—	Cash and cash equivalents	$	65,922	$	65,922	$	65,922	$	—	$	—
Interest bearing deposits in banks	Interest bearing deposits in banks	12,699		12,699		—		12,699		—		Interest bearing deposits in banks	13,196		13,196		—		13,196		—
Investment securities	Investment securities	106,810		106,810		1,047		105,763		—		Investment securities	268,951		268,951		4,007		264,944		—
Loans held for sale	Loans held for sale	32,188		33,437		—		33,437		—		Loans held for sale	13,829		14,088		—		14,088		—
Loans, net	Loans, net											Loans, net
Residential real estate	Residential real estate	181,355		185,890		—		—		185,890		Residential real estate	244,980		246,573		—		—		246,573
Construction real estate	Construction real estate	56,643		56,882		—		—		56,882		Construction real estate	64,370		64,539		—		—		64,539
Commercial real estate	Commercial real estate	315,522		324,085		—		—		324,085		Commercial real estate	340,066		341,451		—		—		341,451
Commercial	Commercial	108,382		106,358		—		—		106,358		Commercial	49,558		48,682		—		—		48,682
Consumer	Consumer	2,586		2,557		—		—		2,557		Consumer	2,367		2,350		—		—		2,350
Municipal	Municipal	98,264		98,973		—		—		98,973		Municipal	78,078		78,748		—		—		78,748
Accrued interest receivable	Accrued interest receivable	4,129		4,129		—		446		3,683		Accrued interest receivable	3,248		3,248		—		734		2,514
Nonmarketable equity securities	Nonmarketable equity securities	1,150		N/A								Nonmarketable equity securities	1,164		N/A
Financial liabilities	Financial liabilities											Financial liabilities
Deposits	Deposits											Deposits
Noninterest bearing	Noninterest bearing	$	215,245	$	215,245	$	215,245	$	—	$	—	Noninterest bearing	$	264,888	$	264,888	$	264,888	$	—	$	—
Interest bearing	Interest bearing	637,369		637,369		637,369		—		—		Interest bearing	723,479		723,479		723,479		—		—
Time	Time	141,688		142,605		—		142,605		—		Time	106,715		106,588		—		106,588		—
Borrowed funds

Long-term		7,164		7,585		—		7,585		—

Subordinated notes												Subordinated notes	16,171		16,179		—		16,179		—
Accrued interest payable	Accrued interest payable	108		108		—		108		—		Accrued interest payable	225		225		—		225		—

The carrying amounts in the preceding tables are included in the consolidated balance sheets under the applicable captions. Accrued interest receivable and nonmarketable equity securities are included in Other assets in the consolidated balance sheets.

Note ~~13.~~12. Subsequent Events

Subsequent events represent events or transactions occurring after the balance sheet date but before the financial statements are issued. Financial statements are considered “issued” when they are widely distributed to shareholders and others for general use and reliance in a form and format that complies with GAAP. Events occurring subsequent to September 30, ~~2021~~2022 have been evaluated as to their potential impact to the consolidated financial statements.

On October ~~20, 2021,~~19, 2022, the Company declared a regular quarterly cash dividend of ~~$0.33~~$0.35 per share, payable November ~~4, 2021,~~3, 2022, to stockholders of record on October ~~30, 2021.~~29, 2022.

Union Bankshares, Inc. Page 2625

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

GENERAL

The following discussion and analysis focuses on those factors that, in management's view, had a material effect on the financial position of the Company as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, and its results of operations for the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021. This discussion is being presented to provide a narrative explanation of the consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes and with other financial data appearing elsewhere in this filing and with the Company's ~~2020~~2021 Annual Report. In the opinion of the Company's management, the interim unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments and disclosures necessary to fairly present the Company's consolidated financial position and results of operations for the interim periods presented. Management is not aware of the occurrence of any events after September 30, ~~2021~~2022 which would materially affect the information presented.

Please refer to Note 1 in the Company's unaudited interim consolidated financial statements at Part I, Item 1 of this Report for definitions of acronyms, abbreviations and capitalized terms used throughout the following discussion and analysis.

CAUTIONARY ADVICE ABOUT FORWARD LOOKING STATEMENTS

The Company, "we," "us," "our," may from time to time make written or oral statements that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include financial projections, statements of plans and objectives for future operations, estimates of future economic performance or conditions and assumptions relating thereto. The Company may include forward-looking statements in its filings with the SEC, in its reports to stockholders, including this quarterly report, in press releases, other written materials, and in statements made by senior management to analysts, rating agencies, institutional investors, representatives of the media and others.

Forward-looking statements ~~reflect management's~~are based on the current assumptions underlying the statements and other information with respect to the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and the financial condition, results of operations, future performance and business are ~~subject to uncertainties, both general and specific, and risk exists~~only expectations of future results. Although the Company believes that the expectations reflected in the Company’s forward-looking statements are reasonable, the Company’s actual results will differ from those predictions, forecasts, projections and other estimates contained in forward-looking statements. These risks cannot be readily quantified. When management uses any of the words “believes,” “expects,” “predicts,” “anticipates,” “intends,” “projects,” “plans,” “seeks,” “estimates,” “targets,” “goals,” “may,” “might,” “could,” “would,” “should,” or similar expressions, they are making forward-looking statements. Many possible events or factors, including those beyond the control of management, could ~~affect the future financial results and performance of the Company.~~

~~Factors that may cause results or performance to~~ differ materially from those ~~expressed~~projected in the forward-looking statements ~~include, but are not limited to:~~

•~~General~~as a result of, among other factors, changes in interest rates; competitive pressures from other financial institutions; general economic conditions ~~and financial instability, either nationally, internationally, regionally or locally;~~

•~~Increased competitive pressures, including those from tax-advantaged credit unions and other financial service providers in our northern Vermont and New Hampshire market area~~on a national basis or in the ~~financial services industry generally, from increasing consolidation and integration of financial service providers, and from~~local markets in which the Company operates; changes in ~~technology~~consumer behavior due to changing political, business and ~~delivery systems;~~

•~~Interest rates change in a way that puts pressure on the Company's margins,~~economic conditions, including concerns about inflation, or ~~that results in lower fee income and lower gain on sale of real estate loans,~~legislative or ~~that increases our interest costs;~~

•Changes in laws or government rules, or the way in which courts or government agencies interpret or implement those laws or rules, that increase our costs of doing business or otherwise adversely affect our business;

•~~Further~~regulatory initiatives; changes in ~~federal or state tax policy;~~

•~~Changes~~the value of securities and other assets in ~~our level of nonperforming assets and charge-offs;~~

•~~Changes in depositor behavior resulting in movement of funds out of bank deposits and into the stock market or other higher-yielding investments;~~

•~~Changes in estimates of future reserve requirements based upon relevant regulatory and accounting requirements;~~

•~~Changes in information technology that require increased capital spending or that result in new or increased risks;~~

•~~Changes in consumer and business spending, borrowing and savings habits;~~

•~~Changes in accounting principles, including those governing the manner of estimating our credit risk and calculating our loan loss reserve;~~

•~~Further changes to the regulations governing the calculation of~~ the Company’s ~~regulatory capital ratios;~~

•~~Increased competitive pressures affecting~~investment portfolio; increases in loan and lease default and charge-off rates; the ~~ability~~adequacy of allowances for loan and lease losses; decreases in deposit levels that necessitate increases in borrowing to fund loans and investments; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; changes in regulation, war, terrorism, civil unrest; due to changes in economic assumptions and adverse economic developments; the ~~Company to attract, develop~~risk that goodwill and ~~retain employees;~~

•~~Increased cybersecurity threats; and~~

•~~The effect of~~intangibles recorded in the Company’s financial statements will become impaired; and changes in assumptions used in making such forward-looking statements; and the ~~United States monetary~~other risks and ~~fiscal policies, including interest rate policies and regulation of~~uncertainties detailed in the ~~money supply by the FRB.~~

~~Union Bankshares, Inc. Page 27~~

Company’s 2021 Annual Report.

In addition, statements about the continuing and potential future effects of the COVID-19 pandemic, including emergence of virus variants, on the Company's financial position and results of operations reflect inherent uncertainties and may constitute forward-looking statements. Such statements may include, but are not limited to, statements concerning:

•the continuing ability of our employees to work remotely;

•our ability to staff our branches and keep our branches open;

•the continuing strength of our capital and liquidity positions;

•our continued ability to access sources of contingent liquidity;

•the continuing strength of the asset quality in our lending portfolios; and

•the ~~potential~~ effectiveness of relief measures and programs for customers affected by COVID-19.

When evaluating forward-looking statements to make decisions about the Company and our stock, investors and others are cautioned to consider these and other risks and uncertainties, and are reminded not to place undue reliance on such statements. Investors should not consider the foregoing list of factors to be a complete list of risks or uncertainties. Forward-looking statements speak only as of the date they are made and the Company undertakes no obligation to update them to reflect new or changed information or events, except as may be required by federal securities laws.

Union Bankshares, Inc. Page 26

Non-GAAP Financial Measures

Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. However, two non-GAAP financial measures commonly used by financial institutions, namely tax-equivalent net interest income and tax-equivalent net interest margin (as presented in the tables in the section labeled Yields Earned and Rates Paid), have not been specifically exempted by the SEC, and may therefore constitute non-GAAP financial measures under Regulation G. We are unable to state with certainty whether the SEC would regard those measures as subject to Regulation G. Management believes that these non-GAAP financial measures are useful in evaluating the Company’s financial performance and facilitate comparisons with the performance of other financial institutions. However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.

CRITICAL ACCOUNTING POLICIES

The Company has established various accounting policies which govern the application of GAAP in the preparation of the Company's consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the reported amount of assets, liabilities, capital, revenues and expenses and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require management to make its most difficult and subjective judgments, often as a result of the need to make estimates on matters that are inherently uncertain. Based on this definition, management has identified the accounting policies and judgments most critical to the Company. They include establishing the amount of ALL, evaluating our investment securities for OTTI, and valuing our intangible assets. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from estimates and have a material impact on the carrying value of assets, liabilities, or capital, and/or the results of operations of the Company.

Please refer to the Company's ~~2020~~2021 Annual Report ~~on Form 10-K~~ for a more in-depth discussion of the Company's critical accounting policies. There have been no changes to the Company's critical accounting policies since the filing of that report.

OVERVIEW

In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 (the Notes) to certain qualified institutional buyers and accredited investors. The Notes will initially bear interest, payable semi-annually, at the rate of 3.25% per annum, until September 1, 2026. From and including September 1, 2026, theConcerns over interest rate ~~applicable~~levels, energy prices, domestic and global policy issues, trade policy in the U.S. and geopolitical events, as well as the implications of those events on the markets in general, add to the ~~outstanding principal amount due~~global uncertainty. There is also a risk that interest rate increases to fight inflation could lead to a prolonged recession. The FRB increased short-term interest rates in 2022 by a total of 375 bps through November to fight inflation. Interest rate levels and energy prices, in combination with global economic conditions, fiscal and monetary policy and the level of regulatory and government scrutiny of financial institutions will ~~reset quarterly~~continue to the then current three-month secured overnight financing rate (SOFR) plus 263 basis points. The Company may, at its option, beginning with the interest payment date of September 1, 2026 but not generally prior thereto,impact our results in 2022 and ~~on any scheduled interest payment date thereafter, redeem the Notes, in whole or in part.~~

~~The Company used the proceeds to provide additional capital to Union to support its growth and for other general corporate purposes.~~

~~Union Bankshares, Inc. Page 28~~

beyond.

Consolidated net income decreased ~~$222~~$167 thousand, or ~~5.4%~~4.3%, to $3.8 million for the third quarter of 2022 compared to $3.9 million for the third quarter of 2021 ~~compared to $4.1 million for the third quarter of 2020~~ due to the combined ~~effect~~effects of a decrease in noninterest income of $1.7 million, partially offset by an increase in net interest income of ~~$1.0 million and a decrease in the provision for loan losses of $800 thousand, partially offset by a decrease in noninterest income of~~ $1.3 million, and ~~increases of $553 thousand in noninterest expenses and $123 thousand~~decreases in income tax ~~expense.~~expense of $91 thousand and noninterest expenses of $182 thousand.

~~Net interest~~Consolidated net income ~~increased $3.0 million,~~decreased $621 thousand, or ~~12.8%~~6.3%, to ~~$26.5~~$9.2 million for the the nine months ended September 30, 2022 compared to $9.8 million for the nine months ended September 30, 2021 ~~compared to $23.5 million for the nine months ended September 30, 2020. Interest income increased $1.8 million primarily~~ due to ~~higher volumes~~the combined effects of earning assets despite lower yields, and recognition of higher fee income from PPP loans for the first nine months of 2021 compared to the same period in 2020. Interest expense was $2.8 million for the nine months ended September 30, 2021 compared to $4.0 million for the nine months ended September 30, 2020, reflecting lower rates paid on deposits despite an increase in ~~interest-bearing liabilities between periods~~net interest income of ~~$113.9 million.~~

~~The~~$2.6 million and decreases in the provision for loan losses ~~was~~of $225 thousand ~~for the nine months ended September 30, 2021 compared to $1.6 million for the same period in 2020. The provision for loan losses was higher for the three~~ and ~~nine months ended September 30, 2020 due to management's adjustment to the economic qualitative factors utilized to estimate the allowance for loan losses due to the economic uncertainty at the onset~~income tax expense of ~~the COVID-19 pandemic. There~~$203 thousand, which were ~~no changes to the methodology for calculating the allowance for loan losses during either of the nine month comparison periods.~~

Total noninterest income amounted to $10.0 million for the nine months ended September 30, 2021 compared to $11.0 million for the nine months ended September 30, 2020, a decrease of $1.1 million, or 9.6%. The decrease is primarily due tomore than offset by a decrease in ~~sales~~noninterest income of ~~qualifying residential loans. There were $164.2~~$3.3 million in residential loan sales with net gains of $4.0 million for the nine months ended September 30, 2021, compared to residential loan sales of $187.5 million with net gains of $5.4 million for the same period in 2020. The decrease in the volume of loan sales reflects management's decision to slow sales in the first quarter of 2021 to utilize some excess liquidity and an increase ~~interest income on loans.~~

~~Total~~in noninterest expenses ~~were $24.4 million for the nine months ended September 30, 2021, compared to $22.3 million for the same period in 2020. Increases~~ of $886 thousand in salaries and wages, $147 thousand in employee benefits, $276 thousand in equipment expenses, $785 thousand in other expenses and $18 thousand in occupancy expenses, occurred between the nine month comparison periods of 2021 and 2020.$385 thousand.

At September 30, ~~2021,~~2022, the Company had total consolidated assets of ~~$1.16~~$1.30 billion, including gross loans and loans held for sale (total loans) of ~~$790.0~~$941.2 million, deposits of ~~$1.04~~$1.20 billion, borrowed funds of ~~$7.0~~$25.0 million, subordinated debt of $16.2 million and stockholders' equity of ~~$83.7~~$49.7 million.

~~As of~~The Company's total capital decreased from $84.3 million at December 31, 2021 to $49.7 million at September 30, ~~2021, Union had originated a combined total~~2022. This decrease primarily reflects an increase of ~~$102.1~~$39.4 million in ~~PPP loans since inception~~accumulated other comprehensive loss and regular cash dividends declared of $4.7 million, offset by net income of $9.2 million for the ~~program~~first nine months of 2022. (See Capital Resources on page 44.) These changes also resulted in ~~2020. As~~a decrease in the Company's book value per share to $11.06 from $18.67 as of December 31, 2021.

Union Bankshares, Inc. Page 27

Return on average assets is a financial metric often utilized as an indicator of a financial institution's performance. The Company's return on average assets decreased 21 bps and 19 bps for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021 ~~$73.9~~primarily due to an increase in average assets of $148.5 million ~~in PPP loans had been forgiven by the SBA. Union's borrowers have received 100% forgiveness on all applications submitted to date. Interest income~~ and ~~origination fees from PPP loans were $777 thousand and $2.5~~$127.5 million for the three and nine months ended September 30, ~~2021,~~2022, respectively. ~~As of September 30, 2021, there was $1.2 million remaining in PPP origination fee income to be recognized in future periods.~~

The Company's total capital increased from $80.9 million at December 31, 2020 to $83.7 million at September 30, 2021. This increase primarily reflects net income of $9.8 million for the first nine months of 2021, offset by decreases of $2.8 million in accumulated other comprehensive income and regular cash dividends declared of $4.4 million. (See ~~Capital Resources~~ ~~on page 44.)~~

~~Union Bankshares, Inc. Page 29~~

The following unaudited per share information and key ratios depict several measurements of performance or financial condition at or for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively:


		Three Months Ended or At September 30,						Nine Months Ended or At September 30,							Three Months Ended or At September 30,						Nine Months Ended or At September 30,
		2021			2020			2021			2020				2022			2021			2022			2021
Return on average assets (1)	Return on average assets (1)	1.39		%	1.68		%	1.17		%	1.29		%	Return on average assets (1)	1.18		%	1.39		%	0.98		%	1.17		%
Return on average equity (1)	Return on average equity (1)	18.50		%	21.50		%	15.93		%	16.09		%	Return on average equity (1)	24.19		%	18.50		%	17.78		%	15.93		%
Net interest margin (1)(2)	Net interest margin (1)(2)	3.44		%	3.57		%	3.39		%	3.66		%	Net interest margin (1)(2)	3.40		%	3.44		%	3.29		%	3.39		%
Efficiency ratio (3)	Efficiency ratio (3)	63.47		%	57.85		%	66.30		%	63.93		%	Efficiency ratio (3)	64.14		%	63.47		%	68.65		%	66.30		%
Net interest spread (4)	Net interest spread (4)	3.35		%	3.42		%	3.27		%	3.49		%	Net interest spread (4)	3.26		%	3.35		%	3.18		%	3.27		%
Loan to deposit ratio	Loan to deposit ratio	75.92		%	87.78		%	75.92		%	87.78		%	Loan to deposit ratio	78.67		%	75.92		%	78.67		%	75.92		%
Net loan charge-offs to average loans not held for sale (1)	Net loan charge-offs to average loans not held for sale (1)	(0.03)		%	—		%	(0.01)		%	0.01		%	Net loan charge-offs to average loans not held for sale (1)	—		%	(0.03)		%	—		%	(0.01)		%
Allowance for loan losses to loans not held for sale	Allowance for loan losses to loans not held for sale	1.11		%	1.00		%	1.11		%	1.00		%	Allowance for loan losses to loans not held for sale	0.89		%	1.11		%	0.89		%	1.11		%
Nonperforming assets to total assets (5)	Nonperforming assets to total assets (5)	0.50		%	0.34		%	0.50		%	0.34		%	Nonperforming assets to total assets (5)	0.13		%	0.50		%	0.13		%	0.50		%
Equity to assets	Equity to assets	7.23		%	7.77		%	7.23		%	7.77		%	Equity to assets	3.82		%	7.23		%	3.82		%	7.23		%
Total capital to risk weighted assets	Total capital to risk weighted assets	16.16		%	13.65		%	16.16		%	13.65		%	Total capital to risk weighted assets	13.69		%	16.16		%	13.69		%	16.16		%
Book value per share	Book value per share	$	18.67		$	17.52		$	18.67		$	17.52		Book value per share	$	11.06		$	18.67		$	11.06		$	18.67
Basic earnings per share	Basic earnings per share	$	0.87		$	0.92		$	2.18		$	2.01		Basic earnings per share	$	0.84		$	0.87		$	2.04		$	2.18
Diluted earnings per share	Diluted earnings per share	$	0.87		$	0.92		$	2.17		$	2.01		Diluted earnings per share	$	0.83		$	0.87		$	2.03		$	2.17
Dividends paid per share	Dividends paid per share	$	0.33		$	0.32		$	0.99		$	0.96		Dividends paid per share	$	0.35		$	0.33		$	1.05		$	0.99
Dividend payout ratio (6)	Dividend payout ratio (6)	37.93		%	34.78		%	45.41		%	47.76		%	Dividend payout ratio (6)	41.67		%	37.93		%	51.47		%	45.41		%

__________________

(1)Annualized.

(2)The ratio of tax equivalent net interest income to average earning assets. See pages 3230 and 3331 for more information.

(3)The ratio of noninterest expense to tax equivalent net interest income and noninterest income, excluding securities gains (losses).

(4)The difference between the average yield on earning assets and the average rate paid on interest bearing liabilities. See pages 3230 and 3331 for more information.

(5)Nonperforming assets are loans or investment securities that are in nonaccrual or 90 or more days past due as well as OREO or OAO.

(6)Cash dividends declared and paid per share divided by consolidated net income per share.

RESULTS OF OPERATIONS

Net Interest Income. The largest component of the Company’s operating income is net interest income, which is the difference between interest and dividend income received from earning assets and interest expense paid on interest bearing liabilities. Net interest income is affected by various factors including, but not limited to changes in interest rates, loan and deposit pricing strategies, the volume and mix of interest earning assets and interest bearing liabilities, and the level of nonperforming assets. Net interest margin is calculated as the net interest income on a fully tax equivalent basis as a percentage of average earning assets.

~~The fed funds target range remains at 0%~~Interest earned on average earning assets for the three months ended September 30, 2022 was $11.5 million compared to ~~0.25% since~~$9.9 million for the ~~reductions made by the Federal Open Market Committee (FOMC)~~three months ended September 30, 2021, an increase of $1.6 million, or 16.4%, primarily due to an increase in ~~March 2020. The most recent meeting~~average earning assets of ~~the FOMC, held on November 3, 2021, indicated that this low target range will remain in effect, but they are committed~~$167.6 million and to ~~using its full range of tools to support the economy. The FOMC also decided to begin tapering net asset purchases in November and is prepared to adjust the pace of purchases if warranted by changes~~a lesser extent an increase in the ~~economic outlook.~~

average yields of 3 bps. The average yield on average earning assets was 3.73% for the three months ended September 30, 2022 compared to 3.70% for the three months ended September 30, 2021 compared to 4.07% for the three months ended September 30, 2020, a decrease of 37 bps despite an increase in average earning assets of $139.3 million. The prolonged low interest rate environment continues to put downward pressure on asset yields.2021. Interest income on investment securities increased ~~$200~~$633 thousand between the three month comparison periods due to an increase in the average balances of ~~$71.7~~$138.4 million, ~~despite a decrease~~and an increase of 554 bps in the average yield. The average balance of PPP loans was ~~$39.8~~$1.7 million for the three months ended September 30, ~~2021~~2022 with an average yield of ~~7.74%~~24.10%, which takes into account the 1.0% interest charged on PPP loans and related fee income recognized during the three months ended September 30, ~~2021.~~2022. Interest income on loans, excluding PPP loans, increased $1.6 million between the three

Union Bankshares, Inc. Page 3028

~~income on loans, excluding PPP loans, increased $22 thousand between three~~ month comparison periods due to an increase in the average volume of loans outstanding of ~~$25.7~~$153.9 million, partially offset by a decrease of 182 bps in the average yield.

Interest expense for the third quarter of ~~2021 decreased $452~~2022 increased $317 thousand compared to the third quarter of ~~2020~~2021 due to ~~lower~~higher rates paid on customer deposit accounts ~~despite~~and increases in average deposit balances of ~~$78.7~~$71.5 million, along with the addition of $141 thousand of interest expense on subordinated notes with an average balance of $16.2 million. The increase in average customer deposit balances is due to ~~an increase~~overall growth of the Company and the utilization of $32.0 million in ~~the money supply from proceeds~~brokered deposits included in time deposits as of ~~PPP loans, government stimulus payments, and other economic recovery payments.~~September 30, 2022. The average rate paid on interest bearing liabilities ~~decreased 30~~increased 12 bps to 0.47% for the third quarter of 2022 compared to 0.35% for the third quarter of ~~2021 compared to 0.65% for the third quarter of 2020.~~2021. The average rates paid on interest bearing checking accounts and savings and money market accounts ~~decreased 10~~increased 12 bps and 275 bps, respectively, between the third quarter comparison periods. The ~~Company decreased interest rates paid on deposit accounts early in 2021 and implemented a tiered rate structure in these accounts which has remained in place as of September 30, 2021. The decreases~~increases in these interest rates resulted in ~~decreases~~increases in interest expense of ~~$26~~$116 thousand on interest bearing checking accounts and ~~$201~~$65 thousand on savings and money market accounts between the three month comparison periods. Interest expense on time deposits ~~decreased $279~~increased $92 thousand due to ~~decreases~~increases in the average volume of ~~$32.5~~$12.1 million and 6424 bps in the average rate paid during the third quarter of ~~2021~~2022 compared to the same period in 2020. Management believes that the decrease in the average volume is due to customers transferring proceeds from matured CDs into non-maturity deposits in hopes of obtaining higher yields in future periods. The remaining higher rate paying CD specials2021. A time deposit special was offered ~~in prior years matured in~~during the third quarter of ~~2021. Higher customer deposit balances reduced reliance on wholesale funding, as evidenced by decreases between the three month comparison periods~~2022 for a term of ~~$2.4 million in the average outstanding balance~~22 months at a rate of ~~borrowed funds and $2 thousand in related interest expense.~~2.20%. The issuance of subordinated debt during the third quarter of 2021 resulted in an average balance of $16.2 million for the third quarter of 2022, an average rate of 3.47% and interest expense of $141 thousand compared to an average balance of $8.2 million for the third quarter of 2021, ~~and~~ an average rate of 2.71% and interest expense of $56 thousand.

The net interest spread decreased 79 bps to ~~3.35%~~3.26% for the third quarter of ~~2021,~~2022, from ~~3.42%~~3.35% for the same period last year, reflecting the net effect of the 3012 bps ~~decrease~~increase in the average rate paid on interest bearing liabilities and the 373 bps ~~decrease~~increase in the average yield earned on interest earning assets between periods. The net interest margin decreased 134 bps during the third quarter of ~~2021~~2022 compared to the same period last year as a result of the changes discussed above.

Net interest income was ~~$26.5~~$29.1 million, on a fully tax equivalent basis for the nine months ended September 30, ~~2021~~2022 compared to ~~$23.5~~$26.5 million for the nine months ended September 30, ~~2020,~~2021, an increase of ~~$3.0~~$2.6 million, or ~~12.8%~~9.9%. The average volume of earning assets increased ~~$185.6~~$139.0 million and the average yield on earning assets decreased 5317 bps to ~~3.74%~~3.57% compared to ~~4.27%~~3.74% for the comparison period. Interest income on investment securities increased ~~$324 thousand~~$1.9 million between the nine month comparison periods due to an increase in the average balances of ~~$58.2~~$148.0 million, ~~despite a decrease of 71 bps~~with no change in the average yield. Average loans, excluding PPP loans, increased ~~$55.4~~$88.8 million, or ~~7.90%~~11.74%, to ~~$756.7~~$845.6 million for the nine months ended September 30, ~~2021. Despite an~~2022. The increase in the average loan volume resulted in a $2.3 million increase in interest income on loans ~~decreased $88 thousand~~ between periods, ~~due to~~despite a decrease of 11 bps in the average yield. The decrease in the average ~~yield. As discussed above,~~yield is attributable to holding more residential loans in portfolio, as opposed to selling to the ~~current~~secondary market. While these loans have contributed to the increase in average loans and interest ~~rate environment and competition for quality~~income, the yield on these loans ~~continues~~is lower than other loan types. Management expects loan yields to ~~put downward pressure on loan yields.~~improve over the next quarter as new loans are being booked at higher rates. The average balance of PPP loans for the nine months ended September 30, ~~2021~~2022 was $5.3 million with an average yield of 14.33%, compared to $60.4 million with an average yield of 5.57% ~~compared to $40.1 million with an average yield of 2.84%~~ for the nine months ended September 30, ~~2020.~~2021. As mentioned above, the average yield on PPP loans includes the interest earned at 1.0% on the loan as well as origination fee income recognized during the respective periods.

The average cost of funds, which is tied primarily to customer deposit accounts, decreased 318 bps to 0.39% for the nine months ended September 30, 2022 compared to 0.47% for the nine months ended September 30, ~~2021 compared~~2021. Interest expense decreased $267 thousand, to ~~0.78%~~$2.5 million for the nine months ended September 30, ~~2020. Interest expense decreased $1.2 million,~~2022 compared to $2.8 million for the nine months ended September 30, ~~2021 compared to $4.0 million for~~2021. Interest expense decreased during the ~~nine months ended September 30, 2020. The decrease in interest expense was primarily due to lower rates paid on interest bearing liabilities~~comparison period despite an increase in average balances of ~~$113.9~~$59.5 million ~~between periods. Should~~due to the ~~low interest rate environment persist, management~~lag in increasing rates. Management expects ~~further reduction in~~ the average cost of funds ~~in future periods due~~ to ~~further lowering of~~increase over the next quarter as customers may expect higher rates on their deposit accounts prompted by the increase in interest rates ~~on time deposit and savings account products.~~executed by the FRB. The issuance of subordinated debt during the third quarter of 2021 resulted in an average balance of ~~$3.3~~$16.2 million for the nine months ended September 30, ~~2021~~2022 and an average rate of ~~2.28%~~3.51% and interest expense of ~~$56~~$425 thousand.

The net interest spread decreased 229 bps to ~~3.27%~~3.18% for the nine months ended September 30, ~~2021,~~2022, from ~~3.49%~~3.27% for the same period last year, reflecting the net effect of the 318 bps decrease in the average rate paid on interest bearing liabilities and the 5317 bps decrease in the average yield earned on interest earning assets between periods. The net interest margin decreased 2710 bps for the nine months ended September 30, ~~2021~~2022 compared to the same period last year as a result of the changes discussed above.

Union Bankshares, Inc. Page 3129

The following tables show for the periods indicated the total amount of tax equivalent interest income recorded from average interest earning assets, the related average tax equivalent yields, the tax equivalent interest expense associated with average interest bearing liabilities, the related tax equivalent average rates paid, and the resulting tax equivalent net interest spread and margin.


		Three Months Ended September 30,													Three Months Ended September 30,
		2021						2020							2022						2021
		Average Balance		Interest Earned/ Paid		Average Yield/ Rate		Average Balance		Interest Earned/ Paid		Average Yield/ Rate			Average Balance (1)		Interest Earned/ Paid		Average Yield/ Rate		Average Balance (1)		Interest Earned/ Paid		Average Yield/ Rate
		(Dollars in thousands)													(Dollars in thousands)
Average Assets:	Average Assets:													Average Assets:
Federal funds sold and overnight deposits	Federal funds sold and overnight deposits	$	100,760	$	34	0.13	%	$	33,783	$	7	0.08	%	Federal funds sold and overnight deposits	$	12,850	$	41	1.23	%	$	100,760	$	34	0.13	%
Interest bearing deposits in banks	Interest bearing deposits in banks	12,423		34		1.06	%	9,459		41		1.71	%	Interest bearing deposits in banks	14,016		43		1.24	%	12,423		34		1.06	%
Investment securities (1), (2)		156,845		665		1.78	%	85,122		465		2.33	%
Investment securities (2), (3)														Investment securities (2), (3)	295,197		1,298		1.82	%	156,845		665		1.78	%
PPP loans, net ~~(3)~~(4)	PPP loans, net ~~(3)~~(4)	39,791		776		7.74	%	67,845		486		2.85	%	PPP loans, net ~~(3)~~(4)	1,680		102		24.10	%	39,791		776		7.74	%
Loans, net (1), (4)		755,048		8,339		4.41	%	729,336		8,317		4.59	%
Loans, net (2), (5)														Loans, net (2), (5)	908,934		9,972		4.39	%	755,048		8,339		4.41	%
Nonmarketable equity securities	Nonmarketable equity securities	1,164		4		1.36	%	1,150		27		9.34	%	Nonmarketable equity securities	939		7		3.06	%	1,164		4		1.36	%
Total interest earning assets ~~(1)~~(2)	Total interest earning assets ~~(1)~~(2)	1,066,031		9,852		3.70	%	926,695		9,343		4.07	%	Total interest earning assets ~~(1)~~(2)	1,233,616		11,463		3.73	%	1,066,031		9,852		3.70	%
Cash and due from banks	Cash and due from banks	5,008						4,927						Cash and due from banks	4,724						5,008
Premises and equipment	Premises and equipment	21,668						20,384						Premises and equipment	20,938						21,668
Other assets	Other assets	36,364						36,597						Other assets	18,336						36,364
Total assets	Total assets	$	1,129,071					$	988,603					Total assets	$	1,277,614					$	1,129,071
Average Liabilities and Stockholders' Equity:	Average Liabilities and Stockholders' Equity:													Average Liabilities and Stockholders' Equity:
Interest bearing checking accounts	Interest bearing checking accounts	$	258,877	135		0.21	%	$	202,751	161		0.31	%	Interest bearing checking accounts	$	299,180	251		0.33	%	$	258,877	135		0.21	%
Savings/money market accounts	Savings/money market accounts	406,460		285		0.28	%	351,455		486		0.55	%	Savings/money market accounts	425,629		350		0.33	%	406,460		285		0.28	%
Time deposits	Time deposits	111,601		175		0.62	%	144,071		454		1.26	%	Time deposits	123,660		267		0.86	%	111,601		175		0.62	%
Borrowed funds and other liabilities	Borrowed funds and other liabilities	7,070		55		3.06	%	9,497		57		2.36	%	Borrowed funds and other liabilities	2,503		14		2.22	%	7,070		55		3.06	%
Subordinated debentures and notes		8,166		56		2.71	%	—		—		—	%
Subordinated notes														Subordinated notes	16,192		141		3.47	%	8,166		56		2.71	%
Total interest bearing liabilities	Total interest bearing liabilities	792,174		706		0.35	%	707,774		1,158		0.65	%	Total interest bearing liabilities	867,164		1,023		0.47	%	792,174		706		0.35	%
Noninterest bearing deposits	Noninterest bearing deposits	242,283						193,145						Noninterest bearing deposits	334,523						242,283
Other liabilities	Other liabilities	9,729						10,517						Other liabilities	13,789						9,729
Total liabilities	Total liabilities	1,044,186						911,436						Total liabilities	1,215,476						1,044,186
Stockholders' equity	Stockholders' equity	84,885						77,167						Stockholders' equity	62,138						84,885
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,129,071					$	988,603					Total liabilities and stockholders’ equity	$	1,277,614			��		$	1,129,071
Net interest income	Net interest income			$	9,146					$	8,185			Net interest income			$	10,440					$	9,146
Net interest spread ~~(1)~~(2)	Net interest spread ~~(1)~~(2)					3.35	%					3.42	%	Net interest spread ~~(1)~~(2)					3.26	%					3.35	%
Net interest margin ~~(1)~~(2)	Net interest margin ~~(1)~~(2)					3.44	%					3.57	%	Net interest margin ~~(1)~~(2)					3.40	%					3.44	%

Union Bankshares, Inc. Page 3230


		Nine Months Ended September 30,													Nine Months Ended September 30,
		2021						2020							2022						2021
		Average Balance		Interest Earned/ Paid		Average Yield/ Rate		Average Balance		Interest Earned/ Paid		Average Yield/ Rate			Average Balance (1)		Interest Earned/ Paid		Average Yield/ Rate		Average Balance (1)		Interest Earned/ Paid		Average Yield/ Rate
		(Dollars in thousands)													(Dollars in thousands)
Average Assets:	Average Assets:													Average Assets:
Federal funds sold and overnight deposits	Federal funds sold and overnight deposits	$	81,235	$	67	0.11	%	$	34,025	$	71	0.28	%	Federal funds sold and overnight deposits	$	38,470	$	154	0.53	%	$	81,235	$	67	0.11	%
Interest bearing deposits in banks	Interest bearing deposits in banks	13,322		105		1.05	%	7,985		122		2.03	%	Interest bearing deposits in banks	13,695		113		1.11	%	13,322		105		1.05	%
Investment securities (1), (2)		143,622		1,830		1.78	%	85,437		1,506		2.49	%
PPP loans, net (3)		60,420		2,519		5.57	%	40,092		854		2.84	%
Loans (excluding PPP loans), net (1), (4)		756,748		24,717		4.41	%	701,318		24,805		4.78	%
Investment securities (2), (3)														Investment securities (2), (3)	291,595		3,751		1.78	%	143,622		1,830		1.78	%
PPP loans, net (4)														PPP loans, net (4)	5,286		567		14.33	%	60,420		2,519		5.57	%
Loans, net (2), (5)														Loans, net (2), (5)	845,583		26,991		4.30	%	756,748		24,717		4.41	%
Nonmarketable equity securities	Nonmarketable equity securities	1,156		12		1.43	%	2,011		87		5.79	%	Nonmarketable equity securities	907		17		2.53	%	1,156		12		1.43	%
Total interest earning assets (1)		1,056,503		29,250		3.74	%	870,868		27,445		4.27	%
Total interest earning assets (2)														Total interest earning assets (2)	1,195,536		31,593		3.57	%	1,056,503		29,250		3.74	%
Cash and due from banks	Cash and due from banks	4,926						5,214						Cash and due from banks	4,580						4,926
Premises and equipment	Premises and equipment	21,169						20,562						Premises and equipment	21,216						21,169
Other assets	Other assets	36,891						35,630						Other assets	25,617						36,891
Total assets	Total assets	$	1,119,489					$	932,274					Total assets	$	1,246,949					$	1,119,489
Average Liabilities and Stockholders' Equity:	Average Liabilities and Stockholders' Equity:													Average Liabilities and Stockholders' Equity:
Interest bearing checking accounts	Interest bearing checking accounts	$	247,455	438		0.24	%	$	188,286	534		0.38	%	Interest bearing checking accounts	$	287,296	553		0.26	%	$	247,455	438		0.24	%
Savings/money market accounts	Savings/money market accounts	414,082		1,343		0.43	%	316,742		1,662		0.70	%	Savings/money market accounts	437,586		1,030		0.31	%	414,082		1,343		0.43	%
Time deposits	Time deposits	121,639		785		0.86	%	145,574		1,466		1.35	%	Time deposits	111,202		497		0.60	%	121,639		785		0.86	%
Borrowed funds and other liabilities	Borrowed funds and other liabilities	7,133		164		3.03	%	29,035		314		1.42	%	Borrowed funds and other liabilities	845		14		2.21	%	7,133		164		3.03	%
Subordinated debentures and notes		3,266		56		2.28	%	—		—		—	%
Subordinated notes														Subordinated notes	16,184		425		3.51	%	3,266		56		2.28	%
Total interest bearing liabilities	Total interest bearing liabilities	793,575		2,786		0.47	%	679,637		3,976		0.78	%	Total interest bearing liabilities	853,113		2,519		0.39	%	793,575		2,786		0.47	%
Noninterest bearing deposits	Noninterest bearing deposits	234,243						167,845						Noninterest bearing deposits	312,331						234,243
Other liabilities	Other liabilities	9,686						10,113						Other liabilities	12,748						9,686
Total liabilities	Total liabilities	1,037,504						857,595						Total liabilities	1,178,192						1,037,504
Stockholders' equity	Stockholders' equity	81,985						74,679						Stockholders' equity	68,757						81,985
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,119,489					$	932,274					Total liabilities and stockholders’ equity	$	1,246,949					$	1,119,489
Net interest income	Net interest income			$	26,464					$	23,469			Net interest income			$	29,074					$	26,464
Net interest spread (1)						3.27	%					3.49	%
Net interest margin (1)						3.39	%					3.66	%
Net interest spread (2)														Net interest spread (2)					3.18	%					3.27	%
Net interest margin (2)														Net interest margin (2)					3.29	%					3.39	%

__________________

(1)Average balances are calculated based on a daily averaging method.

(2)Average yields reported on a tax equivalent basis using a marginal federal corporate income tax rate of 21%.

~~(2)~~(3)Average balances of investment securities are calculated on the amortized cost basis and include nonaccrual securities, if applicable.

~~(3)~~(4)Includes unamortized costs and unamortized premiums.

~~(4)~~(5)Includes loans held for sale as well as nonaccrual loans, unamortized costs and unamortized premiums and is net of the allowance for loan losses.

Union Bankshares, Inc. Page 3331

Tax exempt interest income amounted to ~~$452~~$623 thousand and ~~$667~~$452 thousand for the three months ended September 30, 2022 and 2021, respectively, and ~~2020, respectively~~$1.6 million and $1.7 million ~~and $2.0 million~~ for the ~~2021~~nine months ended September 30, 2022 and ~~2020 nine month comparison periods,~~2021, respectively. The following table presents the effect of tax exempt income on the calculation of net interest income, using a marginal federal corporate income tax rate of 21% for the ~~2021~~2022 and ~~2020~~2021 three and nine month comparison periods:


		For the Three Months Ended September 30,				For the Nine Months Ended September 30,					For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(Dollars in thousands)									(Dollars in thousands)
Net interest income, as presented	Net interest income, as presented	$	9,146	$	8,185	$	26,464	$	23,469	Net interest income, as presented	$	10,440	$	9,146	$	29,074	$	26,464
Effect of tax-exempt interest	Effect of tax-exempt interest									Effect of tax-exempt interest
Investment securities	Investment securities	31		31		92		91		Investment securities	48		31		146		92
Loans	Loans	59		96		239		287		Loans	88		59		210		239
Net interest income, tax equivalent	Net interest income, tax equivalent	$	9,236	$	8,312	$	26,795	$	23,847	Net interest income, tax equivalent	$	10,576	$	9,236	$	29,430	$	26,795

Rate/Volume Analysis. The following table describes the extent to which changes in average interest rates earned and paid (on a fully tax-equivalent basis) and changes in volume of average interest earning assets and interest bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. For each category of interest earning assets and interest bearing liabilities, information is provided on changes attributable to:

•changes in volume (change in volume multiplied by prior rate);

•changes in rate (change in rate multiplied by prior volume); and

•total change in rate and volume.

Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.


		Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 Increase/(Decrease) Due to Change In						Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 Increase/(Decrease) Due to Change In							Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021 Increase/(Decrease) Due to Change In						Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021 Increase/(Decrease) Due to Change In
		Volume		Rate		Net		Volume		Rate		Net			Volume		Rate		Net		Volume		Rate		Net
		(Dollars in thousands)													(Dollars in thousands)
Interest earning assets:	Interest earning assets:													Interest earning assets:
Federal funds sold and overnight deposits	Federal funds sold and overnight deposits	$	21	$	6	$	27	$	58	$	(62)	$	(4)	Federal funds sold and overnight deposits	$	(55)	$	62	$	7	$	(52)	$	139	$	87
Interest bearing deposits in banks	Interest bearing deposits in banks	11		(18)		(7)		58		(75)		(17)		Interest bearing deposits in banks	4		5		9		3		5		8
Investment securities	Investment securities	344		(144)		200		878		(554)		324		Investment securities	629		4		633		1,961		(40)		1,921
PPP loans, net	PPP loans, net	(269)		559		290		575		1,090		1,665		PPP loans, net	(1,236)		562		(674)		(3,624)		1,672		(1,952)
Loans (excluding PPP loans), net	Loans (excluding PPP loans), net	322		(300)		22		1,916		(2,004)		(88)		Loans (excluding PPP loans), net	1,689		(56)		1,633		2,884		(610)		2,274
Nonmarketable equity securities	Nonmarketable equity securities	—		(23)		(23)		(27)		(48)		(75)		Nonmarketable equity securities	(1)		4		3		(4)		9		5
Total interest earning assets	Total interest earning assets	$	429	$	80	$	509	$	3,458	$	(1,653)	$	1,805	Total interest earning assets	$	1,030	$	581	$	1,611	$	1,168	$	1,175	$	2,343
Interest bearing liabilities:	Interest bearing liabilities:													Interest bearing liabilities:
Interest bearing checking accounts	Interest bearing checking accounts	$	37	$	(63)	$	(26)	$	139	$	(235)	$	(96)	Interest bearing checking accounts	$	24	$	92	$	116	$	75	$	40	$	115
Savings/money market accounts	Savings/money market accounts	68		(269)		(201)		423		(742)		(319)		Savings/money market accounts	13		52		65		72		(385)		(313)
Time deposits	Time deposits	(86)		(193)		(279)		(215)		(466)		(681)		Time deposits	21		71		92		(62)		(226)		(288)
Borrowed funds	Borrowed funds	(16)		14		(2)		(340)		190		(150)		Borrowed funds	(29)		(12)		(41)		(114)		(36)		(150)
Subordinated debentures and notes		56		—		56		56		—		56
Subordinated notes														Subordinated notes	66		19		85		325		44		369
Total interest bearing liabilities	Total interest bearing liabilities	$	59	$	(511)	$	(452)	$	63	$	(1,253)	$	(1,190)	Total interest bearing liabilities	$	95	$	222	$	317	$	296	$	(563)	$	(267)
Net change in net interest income	Net change in net interest income	$	370	$	591	$	961	$	3,395	$	(400)	$	2,995	Net change in net interest income	$	935	$	359	$	1,294	$	872	$	1,738	$	2,610

Provision for Loan Losses. There was no provision for loan losses recorded for the three ~~months ended September 30, 2021~~ and ~~$225 thousand recorded for the~~ nine months ended September 30, ~~2021,~~2022 compared to ~~$800~~no provision and $225 thousand ~~and $1.6 million~~recorded for the three and nine months ended September 30, ~~2020,~~2021, respectively. The higher provision in both 2020 comparison periods resulted from management's adjustment to the economic qualitative factors utilized to estimate the allowance for loan losses due to the economic disruption related to the COVID-19 pandemic impacting Union's borrowers. TheNo provision for ~~loan losses~~

~~Union Bankshares, Inc. Page 34~~

~~for~~ the ~~first~~three and nine months ~~of 2021~~ended September 30, 2022 was deemed appropriate by management based on the size and mix of the loan portfolio, the level of nonperforming loans, the results of the qualitative factor review and

Union Bankshares, Inc. Page 32

prevailing economic conditions. For further details, see FINANCIAL CONDITION- Allowance for Loan Losses and Asset Quality below.

Noninterest Income. The following table sets forth the components of noninterest income and changes between the three and nine month comparison periods of ~~2021~~2022 and ~~2020:~~2021:


		For The Three Months Ended September 30,							For the Nine Months Ended September 30,								For The Three Months Ended September 30,							For the Nine Months Ended September 30,
		2021		2020		$ Variance		% Variance	2021		2020		$ Variance		% Variance		2022		2021		$ Variance		% Variance	2022		2021		$ Variance		% Variance
		(Dollars in thousands)															(Dollars in thousands)
Trust income	Trust income	$	216	$	173	$	43	24.9	$	599	$	524	$	75	14.3	Trust income	$	203	$	216	$	(13)	(6.0)	$	629	$	599	$	30	5.0
Service fees	Service fees	1,720		1,539		181		11.8	4,824		4,320		504		11.7	Service fees	1,803		1,720		83		4.8	5,176		4,824		352		7.3
Net gains on sales of loans held for sale	Net gains on sales of loans held for sale	1,929		3,315		(1,386)		(41.8)	3,974		5,354		(1,380)		(25.8)	Net gains on sales of loans held for sale	448		1,929		(1,481)		(76.8)	748		3,974		(3,226)		(81.2)
Income from Company-owned life insurance	Income from Company-owned life insurance	76		82		(6)		(7.3)	214		241		(27)		(11.2)	Income from Company-owned life insurance	112		76		36		47.4	401		214		187		87.4
Income from MSRs, net		256		297		(41)		(13.8)	210		376		(166)		(49.1)
(Expense) income from MSRs, net																(Expense) income from MSRs, net	(73)		256		(329)		(128.5)	(362)		210		(572)		(272.4)
Other income	Other income	35		26		9		34.6	112		74		38		51.4	Other income	34		35		(1)		(2.9)	184		112		72		64.3

Net (losses) gains on other investments	Net (losses) gains on other investments	(1)		76		(77)		(101.3)	58		114		(56)		(49.1)	Net (losses) gains on other investments	(60)		(1)		(59)		5,900.0	(120)		58		(178)		(306.9)
Net (losses) gains on sales of investment securities AFS	Net (losses) gains on sales of investment securities AFS	(30)		—		(30)		—	(30)		11		(41)		(372.7)	Net (losses) gains on sales of investment securities AFS	—		(30)		30		(100.0)	31		(30)		61		(203.3)
Total noninterest income	Total noninterest income	$	4,201	$	5,508	$	(1,307)	(23.7)	$	9,961	$	11,014	$	(1,053)	(9.6)	Total noninterest income	$	2,467	$	4,201	$	(1,734)	(41.3)	$	6,687	$	9,961	$	(3,274)	(32.9)

The significant changes in noninterest income for the three and nine months ended September 30, ~~2021~~2022 compared to the same periods of ~~2020~~2021 are described below:

•Trust income. Trust income increased for the nine months ended as dollars in managed fiduciary accounts grew between September 30, 2022 and 2021. The decrease for the three months ended September 30, 2022, compared to the same period in 2021 ~~and 2020, aided by~~is due to the ~~improvement~~decline in the stock market.

•Service fees. Service fees increased ~~$181~~$83 thousand for the three months ended September 30, ~~2021,~~2022, compared to the same period ~~of 2020~~in 2021 primarily due to increases of ~~$25~~$66 thousand in overdraft fee income, ~~$77 thousand in ATM network fees, $32~~$10 thousand in loan servicing fee income, and ~~$40~~$13 thousand in ~~merchant program fee income.~~ATM network fees. Service fees increased ~~$504~~$352 thousand for the nine months ended September 30, 2022 compared to the same period in 2021 primarily due to increases of ~~$323~~$206 thousand in ~~ATM network fees, $81~~overdraft fee income, $76 thousand in loan servicing fee income, ~~and $90~~$31 thousand in merchant program fee ~~income.~~income, and $48 thousand in ATM network fees.

•Net gains on sales of loans held for sale. The Company mitigates long-term interest rate risk by selling qualifying residential loans to the secondary market. ~~Management~~In an effort to utilize some excess liquidity along with the rapid increase in the 10-year treasury rate in 2022 and the related impact on the pricing of loans held for sale, management reduced the volume of loan sales in ~~2021~~2022 compared to ~~2020 in order to utilize some of Union's excess liquidity.~~2021. Residential mortgage loans totaling ~~$79.1~~$25.8 million and ~~$164.2~~$60.2 million were sold during the three and nine months ended September 30, ~~2021,~~2022, respectively, compared to sales of ~~$89.8~~$79.1 million and ~~$187.7~~$164.2 million during the same periods in ~~2020,~~2021, respectively. The decrease of ~~$1.4~~$1.5 million and $3.2 million in net gains on sales of loans held for sale for the three and nine ~~month comparison~~months ended September 30, 2022, respectively, compared to the same periods ~~is reflective of~~in 2021 reflects the lower sales volumes and lower premiums obtained on those sales.

•Income from Company-owned life insurance. The ~~decrease~~Company purchased $5.8 million of Company owned life insurance covering select officers of Union during the fourth quarter of 2021. In addition, $77 thousand was received in proceeds from a death benefit, resulting in increased income for the ~~three and~~ nine months ended September 30, ~~2021 was due~~2022, compared to ~~lower yields earned on~~ the ~~underlying life insurance policies.~~same period in 2021.

•~~Income~~(Expense) income from MSRs, net. Income from MSRs is derived from servicing rights acquired through the sale of loans where servicing is retained. Capitalized servicing rights are initially recorded at fair value and amortized in proportion to, and over the period of, the future estimate of servicing the underlying mortgages. The ~~decrease in the volume~~amortization of ~~sales of residential loans~~MSRs exceeded new capitalized MSRs for the three and nine months ended September 30, ~~2021,~~2022 which resulted in ~~a decease in income~~expense of ~~$41~~$73 thousand and ~~$166~~$362 thousand, ~~respectively, compared to the same periods in 2020.~~respectively.

•Other income. The increase in Other income during the nine month comparison ~~periods is reflective of $6 thousand and $25 thousand in~~period primarily reflects prepayment penalties received from the early payoff of ~~loans during~~loans. The Company received $90 thousand in prepayment penalties for the ~~three and~~ nine months ended September 30, ~~2021, respectively.~~2022 compared to $25 thousand for the nine months ended September 30, 2021.

Union Bankshares, Inc. Page 33

•Net (losses) gains on other investments. Participants in the 2020 Amended and Restated Nonqualified Excess Plan ~~(the "2020 Deferred Compensation Plan")~~ elect to defer receipt of current compensation from the Company or its subsidiary and select designated reference investments consisting of investment funds. The performance of those funds, over which the Company has no control, resulted in net losses of $60 thousand and $120 thousand for the three and nine months ended September 30, 2022, respectively, compared to net losses of $1 thousand and net gains of $58 thousand for the ~~three and nine~~

~~Union Bankshares, Inc. Page 35~~

~~months ended September 30, 2021, respectively, compared to net gains of $76 thousand and $114 thousand for the~~ same periods in ~~2020.~~2021, respectively.

Noninterest Expense. The following table sets forth the components of noninterest expense and changes between the three and nine month comparison periods ended September 30, ~~2021~~2022 and ~~2020:~~2021:


		For The Three Months Ended September 30,							For the Nine Months Ended September 30,								For The Three Months Ended September 30,							For the Nine Months Ended September 30,
		2021		2020		$ Variance		% Variance	2021		2020		$ Variance		% Variance		2022		2021		$ Variance		% Variance	2022		2021		$ Variance		% Variance
		(Dollars in thousands)															(Dollars in thousands)
Salaries and wages	Salaries and wages	$	3,918	$	3,718	$	200	5.4	$	10,554	$	9,668	$	886	9.2	Salaries and wages	$	3,575	$	3,918	$	(343)	(8.8)	$	10,505	$	10,554	$	(49)	(0.5)
Employee benefits	Employee benefits	1,192		1,204		(12)		(1.0)	3,564		3,417		147		4.3	Employee benefits	1,154		1,192		(38)		(3.2)	3,754		3,564		190		5.3
Occupancy expense, net	Occupancy expense, net	425		420		5		1.2	1,429		1,411		18		1.3	Occupancy expense, net	448		425		23		5.4	1,437		1,429		8		0.6
Equipment expense	Equipment expense	872		770		102		13.2	2,542		2,266		276		12.2	Equipment expense	948		872		76		8.7	2,798		2,542		256		10.1
Professional fees	Professional fees	191		185		6		3.2	709		526		183		34.8	Professional fees	247		191		56		29.3	680		709		(29)		(4.1)
FDIC insurance assessment	FDIC insurance assessment	221		121		100		82.6	577		328		249		75.9	FDIC insurance assessment	179		221		(42)		(19.0)	452		577		(125)		(21.7)
Other loan related expenses		94		98		(4)		(4.1)	302		243		59		24.3
Advertising and public relations																Advertising and public relations	161		127		34		26.8	439		373		66		17.7
Vermont franchise tax	Vermont franchise tax	249		193		56		29.0	712		552		160		29.0	Vermont franchise tax	274		249		25		10.0	803		712		91		12.8
Legal fees																Legal fees	18		25		(7)		(28.0)	40		88		(48)		(54.5)
Trust department expenses																Trust department expenses	100		94		6		6.4	292		258		34		13.2

Travel and entertainment																Travel and entertainment	63		41		22		53.7	126		77		49		63.6
Amortization of core deposit intangible																Amortization of core deposit intangible	—		—		—		—	—		71		(71)		(100.0)
ATM and debit card expense	ATM and debit card expense	243		198		45		22.7	664		616		48		7.8	ATM and debit card expense	260		243		17		7.0	717		665		52		7.8
Electronic banking expense		96		83		13		15.7	285		245		40		16.3
Other losses	Other losses	49		13		36		276.9	74		36		38		105.6	Other losses	17		49		(32)		(65.3)	36		74		(38)		(51.4)

Other expenses	Other expenses	998		992		6		0.6	2,978		2,970		8		0.3	Other expenses	922		902		20		2.2	2,696		2,697		(1)		—
Total noninterest expense	Total noninterest expense	$	8,548	$	7,995	$	553	6.9	$	24,390	$	22,278	$	2,112	9.5	Total noninterest expense	$	8,366	$	8,549	$	(183)	(2.1)	$	24,775	$	24,390	$	385	1.6

The significant changes in noninterest expense for the three and nine months ended September 30, ~~2021~~2022 compared to the same periods in ~~2020~~2021 are described below:

•Salaries and wages. ~~The increases in salaries~~Salaries and wages ~~of $200~~decreased by $343 thousand and ~~$886~~$49 thousand for the three and nine months ended September 30, ~~2021,~~2022, respectively, compared to the same periods in ~~2020 were~~2021. The decrease is primarily due to employee turnover and the increased number of open positions that resulted during 2022, a reduction in commissions earned by mortgage loan originators and the deferral of loan origination costs, ~~in 2020 in addition to~~partially offset by annual increases in employee's salaries and wages in 2021 and an increase in the accrual amounts for the annual incentive plan payments. Also, the number of full time equivalent employees has increased from 196 at September 30, 2020 to 199 as of September 30, 2021.salary adjustments. Salaries and wages are reduced by deferred loan origination costs at the time of origination. Deferred loan origination costs reduced salaries and wages by ~~$70~~$45 thousand and $129 thousand for the three and nine months ended September 30, ~~2021,~~2022, respectively, compared to ~~$445~~an increase of $137 thousand and a decrease of $70 thousand for the same ~~period~~periods in ~~2020.~~2021, respectively. The ~~lower~~variance in deferred loan origination costs for ~~2021~~2022 compared to ~~2020~~2021 is primarily attributable to the timing of origination and forgiveness of PPP loans during ~~2021. Additionally, $39 thousand was accrued for a one-time incentive that will be paid to employees who have received the COVID-19 vaccination.~~2021 and 2022.

•Employee benefits. Employee benefit expense decreased ~~$12 thousand and increased $147~~by $38 thousand for the three months ended September 30, 2022 and increased by $190 thousand for the nine months ended September 30, ~~2021, respectively,~~2022, compared to the same periods in ~~2020. The quarterly adjustment in the value~~2021. These variances were primarily due to increases of ~~the underlying assets supporting the 2020 Deferred Compensation Plan decreased $80~~$30 thousand and ~~$63~~$319 thousand for the three and nine months ended September 30, 2021, respectively, and payroll taxes decreased $4 thousand and $39 thousand during the same periods, respectively. These decreases were offset by increases in ~~the costs associated with~~ the Company's medical and dental plans ~~of $51 thousand and $176 thousand~~ for the three and nine ~~months ended September 30, 2021,~~month comparison periods, respectively, and ~~in 401k contributions~~decreases of ~~$21~~$53 thousand and ~~$73~~$146 thousand in employee benefits related to the Company's deferred compensation plans for the three and nine ~~months ended September 30, 2021, respectively, compared~~month comparison periods, respectively.

•Occupancy expense, net. The increase in occupancy expense for the three and nine month comparison periods primarily relates to increases in depreciation, utilities, taxes and repair and maintenance expenses due in part to the ~~same periods~~opening of a new full service branch location in ~~2020.~~the fourth quarter of 2021. These increases were partially offset by a $108 thousand loss recognized due to the disposition of a branch location during the second quarter of 2021.

Union Bankshares, Inc. Page 34

•Equipment expense. Equipment expenses increased between periods primarily due to increases of ~~$114~~$62 thousand and ~~$284~~$255 thousand in software license and maintenance costs and computer operations expense for the three and nine months ended September 30, ~~2021,~~2022, respectively, compared to the same periods in ~~2020.~~2021.

•Professional fees. ~~During~~Professional fees increased by $56 thousand for the three months ended September 30, 2022 due to engagement of additional consultants compared to the same period in 2021. However, during the first ~~nine months~~half of 2021, additional consultants were engaged to assist with employment searches and other advisory services that were not utilized in ~~2020,~~2022, resulting in ~~increases~~a decrease of ~~$6 thousand for the three months ended September 30, 2021, and $183~~$29 thousand for the nine months ended September 30, ~~2021,~~2022 compared to the same ~~periods~~period in ~~2020.~~2021.

~~Union Bankshares, Inc. Page 36~~

•FDIC insurance assessment. The ~~deposit insurance assessment base and~~FDIC assessment rate ~~both increased~~decreased resulting in a decrease in expense for the three and nine months ended September 30, ~~2021 compared to the 2020 comparison periods, resulting in an increase in expense for both periods.~~

•~~Other loan related expenses.~~ Other loan related expenses consist of other costs incurred for originating and servicing loans such as insurance and property tax tracking expenses, credit report fees, and other real estate closing costs. These expenses increased for the nine months ended September 30, 20212022 compared to the same ~~period~~periods in ~~2020 due to the~~2021.

•Advertising and public relations. The increase in ~~loan volumes throughout the Company's market areas.~~advertising and public relations costs primarily related to advertising campaigns and product specific advertising in 2022 that did not occur in 2021.

•Vermont franchise tax. The increase in expense between the three and nine month comparison periods of ~~2020~~2021 and ~~2021~~2022 is due to the increase in average deposit balances for customer accounts allocated to Vermont.

•Legal fees. The decrease in legal fees for the three and nine month comparison periods primarily relates to recoveries received from borrowers for legal fees expensed in prior years.

•Trust department expenses. The increase is primarily attributable to the growth in managed fiduciary accounts and the associated data processing and professional services. In addition, consulting services were engaged in 2022 that were not utilized in 2021.

•Travel and entertainment. The Company has resumed business travel, intercompany travel and events that were suspended due to the economic disruption caused by COVID-19, resulting in increased expense of $22 thousand and $49 thousand for the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021.

•Amortization of core deposit intangible. The core deposit intangible was fully amortized in the second quarter of 2021 resulting in no amortization expense in 2022.

•ATM and debit card ~~expense.~~expenses. The ~~$45 thousand~~increase between comparison periods relates to increases in the volume of ATM and ~~$48 thousand increase~~debit card transactions and new card issuance costs.

•Other losses. Losses were recorded related to business debit card fraud during the third quarter 2021 resulting in a decrease in expense between the three and nine month comparison periods of ~~2020~~2021 and ~~2021, respectively, is due to changes in services with ATM and debit card service providers and an increase in volume of activity.~~

•~~Electronic banking expenses.~~ Electronic banking expenses increased $13 thousand and $40 thousand for the three and nine months ended September 30, 2021, respectively, compared to the same periods in 2020 due to additional online banking services and an increase in volume of activity.

•~~Other losses.~~ ~~The increase in expense between the three and nine month comparison periods of 2020 and 2021 is primarily due to business debit card fraud during the third quarter of 2021.~~2022.

Provision for Income Taxes. The Company has provided for current and deferred federal income taxes for the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~2021. The Company's net provision for income taxes was ~~$874~~$783 thousand and ~~$2.0~~$1.8 million, for the three and nine months ended September 30, ~~2021,~~2022, respectively, compared to ~~$751~~$874 thousand and ~~$1.6~~$2.0 million for the same periods in ~~2020,~~2021, respectively. The Company's effective federal corporate income tax rate was ~~17.9%~~16.6% and ~~16.6%~~16.1% for the three and nine months ended September 30, ~~2021,~~2022, respectively, compared to ~~15.8%~~17.9% and ~~15.1%~~16.6% for the same periods in ~~2020,~~2021, respectively.

Amortization expense related to limited partnership investments is included as a component of tax expense and amounted to ~~$238~~$316 thousand and ~~$739~~$864 thousand for the three and nine months ended September 30, ~~2021,~~2022, respectively, and ~~$303~~$238 thousand and ~~$679~~$739 thousand for the same periods in ~~2020,~~2021, respectively. These investments provide tax benefits, including tax credits. Low income housing and rehabilitation tax credits with respect to limited partnership investments are also included as a component of income tax expense and amounted to $310 thousand and $833 thousand for the three and nine months ended September 30, 2022, respectively, and $241 thousand and $723 thousand for the three and nine months ended September 30, 2021, ~~respectively, and $358 thousand and $748 thousand for the three and nine months ended September 30, 2020,~~ respectively.

FINANCIAL CONDITION

At September 30, ~~2021,~~2022, the Company had total consolidated assets of ~~$1.16~~$1.30 billion, including gross loans and loans held for sale (total loans) of ~~$790.0~~$941.2 million, investment securities AFS of $240.1 million, deposits of ~~$1.04~~$1.20 billion, ~~borrowed funds of $7.0 million,~~ subordinated ~~debentures and~~ notes of $16.2 million and stockholders' equity of ~~$83.7~~$49.7 million. The Company’s total assets at September 30, ~~2021~~2022 increased ~~$64.7~~$94.9 million, or ~~5.9%~~7.9%, from ~~$1.09~~$1.21 billion at December 31, ~~2020,~~2021, and increased ~~$149.2~~$142.0 million, or ~~14.8%~~12.3%, compared to September 30, ~~2020.~~2021.

Net loans and loans held for sale ~~decreased $13.5~~increased $140.9 million, or ~~1.7%~~17.8%, to ~~$781.5~~$934.2 million, representing ~~67.5%~~71.8% of total assets at September 30, ~~2021,~~2022, compared to ~~$794.9~~$793.2 million, or ~~72.7%~~65.8% of total assets at December 31, ~~2020.~~2021. (See Loans Held for Sale and Loan Portfolio below.)

Union Bankshares, Inc. Page 35

Total deposits increased ~~$46.3~~$101.3 million, or ~~4.7%~~9.3%, to ~~$1.04~~$1.20 billion at September 30, ~~2021,~~2022, from ~~$994.3 million~~$1.10 billion at December 31, ~~2020.~~2021. There were increases in noninterest bearing deposits of ~~$37.7~~$72.6 million, or ~~17.5%~~27.4%, and ~~interest bearing~~time deposits of ~~$43.1~~$30.0 million, or ~~6.8%~~28.1%, which were partially offset by a decrease in ~~time~~interest bearing deposits of ~~$34.4~~$1.3 million, or ~~24.3%~~0.2%. (See average balances and rates in the Yields Earned and Rates Paid table on pages 3230 and ~~33.)~~

~~Borrowed funds, which consist of FHLB advances, were $7.0 million at September 30, 2021 and $7.2 million at December 31, 2020. (See~~ ~~Borrowings~~ ~~on page 43.~~31.)

~~Total stockholders’~~Stockholders’ equity ~~increased $2.9~~decreased from $84.3 million at December 31, 2021 to ~~$83.7~~$49.7 million at September 30, ~~2021~~2022, reflecting an increase of $39.4 million in accumulated other comprehensive loss due to a decrease in the fair market value of the Company's AFS investment securities, cash dividends declared of $4.7 million and stock repurchases of $79 thousand during the nine months ended September 30, 2022. These decreases were partially offset by net income of $9.2 million for the first nine months of 2022, an increase of $359 thousand from ~~$80.9 million at December 31, 2020.~~stock based compensation and a $42 thousand increase due to the issuance of common stock under the DRIP. (See Capital Resources on page 44.)

~~Union Bankshares, Inc. Page 37~~

Loans Held for Sale and Loan Portfolio. Total loans (including loans held for sale) ~~decreased $13.4~~increased $140.3 million, or ~~1.7%~~17.5%, to ~~$790.0~~$941.2 million, representing ~~68.2%~~72.4% of assets at September 30, ~~2021,~~2022, from ~~$803.4~~$800.9 million, representing ~~73.5%~~66.4% of assets at December 31, ~~2020.~~2021. The total loan portfolio at September 30, ~~2021 decreased $8.8~~2022 increased $151.2 million compared to the September 30, ~~2020~~2021 level of ~~$798.9~~$790.0 million, which represented ~~79.2%~~68.2% of assets. The Company’s loans consist primarily of adjustable-rate and fixed-rate mortgage loans secured by one-to-four family, multi-family residential or commercial real estate. Real estate secured loans represented ~~$639.7~~$806.4 million, or ~~81.0%~~85.7% of total loans at September 30, ~~2021~~2022 and ~~$593.4~~$670.6 million, or ~~73.9%~~83.7% of total loans at December 31, ~~2020.~~2021. The Company had ~~384~~11 and ~~679~~154 PPP loans totaling ~~$28.2 million~~$958 thousand and ~~$66.2~~$13.6 million classified as commercial loans as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Changes in ~~the composition of~~ the Company's loan portfolio from December 31, ~~2020~~2021 (see table below) resulted primarily from an increase in the volume of residential, construction, commercial real estate and municipal loans originated, partially offset by a decrease in the commercial portfolio related to PPP loan forgiveness and a decrease in the municipal portfolio, partially offset by an increase in the volume of residential loans originated. There was no material change in the Company’s lending programs or terms during the nine months ended September 30, 2021.forgiveness.

The composition of the Company's loan portfolio, including loans held for sale, as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 was as follows:


		September 30, 2021			December 31, 2020				September 30, 2022			December 31, 2021
Loan Class	Loan Class	Amount		Percent	Amount		Percent	Loan Class	Amount		Percent	Amount		Percent
		(Dollars in thousands)							(Dollars in thousands)
Residential real estate	Residential real estate	$	225,797	28.6	$	183,166	22.8	Residential real estate	$	326,769	34.7	$	246,827	30.8
Construction real estate	Construction real estate	73,845		9.3	57,417		7.1	Construction real estate	98,989		10.5	65,149		8.1
Commercial real estate	Commercial real estate	322,212		40.8	320,627		39.9	Commercial real estate	377,458		40.1	344,816		43.1
Commercial	Commercial	64,156		8.1	108,861		13.6	Commercial	42,228		4.5	49,788		6.2
Consumer	Consumer	2,614		0.3	2,601		0.3	Consumer	2,129		0.2	2,376		0.3
Municipal	Municipal	83,562		10.6	98,497		12.3	Municipal	90,475		9.6	78,094		9.8
Loans held for sale	Loans held for sale	17,821		2.3	32,188		4.0	Loans held for sale	3,143		0.4	13,829		1.7
Total loans	Total loans	790,007		100.0	803,357		100.0	Total loans	941,191		100.0	800,879		100.0
Allowance for loan losses	Allowance for loan losses	(8,561)			(8,271)			Allowance for loan losses	(8,340)			(8,336)
Unamortized net loan fees		36			(146)
Unamortized net loan costs								Unamortized net loan costs	1,304			705
Net loans and loans held for sale	Net loans and loans held for sale	$	781,482		$	794,940		Net loans and loans held for sale	$	934,155		$	793,248

The Company originates and sells qualified residential mortgage loans in various secondary market avenues to mitigate long-term interest rate risk and generate fee income, with a majority of sales made to the FHLMC/Freddie Mac, generally with servicing rights retained. At September 30, ~~2021,~~2022, the Company serviced ~~an $873.3~~a $961.9 million residential real estate mortgage portfolio, of which ~~$17.8~~$3.1 million was held for sale and approximately ~~$629.7~~$631.9 million of which was serviced for unaffiliated third parties.

~~During~~In an effort to utilize some excess liquidity during the first half of 2022 and in light of the impact on the pricing of loans resulting from the rapid increase in the 10-year treasury rate in 2022, the Company elected to retain the majority of residential real estate loans originated in the first nine months of ~~2021, the~~2022. The Company sold ~~$164.2~~$60.2 million of qualified residential real estate loans to the secondary market ~~to mitigate long-term interest rate risk and to generate fee income,~~during the first nine months of 2022 compared to sales of ~~$187.5~~$164.2 million during the first nine months of ~~2020.~~2021. Residential mortgage loan origination activity continued to be ~~strong~~stable during the third quarter of ~~2021,~~ 2022,

Union Bankshares, Inc. Page 36

consisting of both refinancing and purchase ~~activity. Customers continue to refinance existing mortgages~~activity, although there has been a decline in ~~order to obtain lower~~refinancing activity with the increase in interest rates. Despite low housing inventory, purchase activity in the Company's markets continues to be ~~strong.~~stable with an increase in construction loan activity. The Company originates and sells FHA, VA, and RD residential mortgage loans, and also has an Unconditional Direct Endorsement Approval from HUD which allows the Company to approve FHA loans originated in any of its Vermont or New Hampshire markets ~~without~~without needing prior HUD underwriting approval. The Company sells FHA, VA and RD loans as originated with servicing released. Some of the government backed loans qualify for zero down payments without geographic or income restrictions. These loan products increase the Company's ability to serve the borrowing needs of residents in the communities served, including low and moderate income borrowers, while the loan sales and government guaranty mitigate the Company's exposure to credit risk.

The Company also originates commercial real estate and commercial loans under various SBA, USDA and State sponsored programs which provide a government agency guaranty for a portion of the loan amount. There was ~~$31.8~~$4.0 million guaranteed under these various programs at September 30, ~~2021~~2022 on an aggregate balance of ~~$33.1~~$5.1 million in subject loans. This includes ~~$28.2 million~~$958 thousand of PPP loans that are guaranteed 100% by SBA, subject to borrower eligibility requirements. The Company occasionally sells the guaranteed portion of a loan to other financial institutions and retains servicing rights, which generates fee income. There were no commercial loans sold in the first nine months of ~~2021~~2022 and ~~$131 thousand in commercial loans were sold in the first nine months of 2020.~~2021. The Company recognizes gains and losses on the sale of the principal portion of these loans as they occur.

~~Union Bankshares, Inc. Page 38~~

The Company serviced ~~$20.2~~$25.4 million of commercial and commercial real estate loans for unaffiliated third parties as of September 30, ~~2021.~~2022. This included ~~$18.5~~$24.0 million of commercial or commercial real estate loans the Company originated and participated out to other financial institutions. These loans were participated in the ordinary course of business on a nonrecourse basis, for liquidity or credit concentration management purposes.

The Company capitalizes MSRs for all loans sold with servicing retained. The unamortized balance of MSRs on loans sold with servicing retained was ~~$2.5~~$2.1 million at September 30, ~~2021,~~2022, with an estimated market value in excess of the carrying value as of such date. Management periodically evaluates and measures the servicing assets for impairment.

Qualifying residential first mortgage loans and certain commercial real estate loans with a carrying value of ~~$225.5~~$271.6 million were pledged as collateral for borrowings from the FHLB under a blanket lien at September 30, ~~2021.~~2022.

Asset Quality. The Company, like all financial institutions, is exposed to certain credit risks, including those related to the value of the collateral that secures its loans and the ability of borrowers to repay their loans. Consistent application of the Company’s conservative loan policies has helped to mitigate this risk and has been prudent for both the Company and its customers. Management closely monitors the Company’s loan and investment portfolios, OREO and OAO for potential problems and reports to the Company’s and Union’s Board at regularly scheduled meetings. Board approved policies set forth portfolio diversification levels to mitigate concentration risk and the Company participates large credits out to other financial institutions to further mitigate that risk.

The region's economic environment ~~is seeing~~continues to see signs of improvement asand the states of Vermont and New Hampshire ~~are~~have been fully opened since June 2021, after the COVID-19 pandemic closure of large segments of the economy. There is demand for leisure travel and dining out which is supporting the region's tourist and restaurant industries; however, the ~~industry is~~industries are also facing some ~~staffing~~ challenges asdue to workforce participation ~~is lagging.~~that continues to lag, supply chain delays and inflation. Demand for homes ~~has surged~~continues to be strong with the general safety and desirability of the region ~~low interest rates~~ and the increased ability of working remotely. The Company’s management is focused on the lingering impact of COVID-19 ~~is having~~ on its borrowers and closely monitors industry and geographic concentrations, specifically the continuing impact on the region's tourist and restaurant industries. The Vermont unemployment rate was reported at 2.1% for September 2022 compared to 2.4% for September 2021 ~~compared to 4.2% for September 2020~~ and the New Hampshire unemployment rate was 2.2% for September 2022 compared to 2.9% for September ~~2021 compared to 6.0% for September 2020.~~2021. These rates compare favorably with the nationwide unemployment rate of ~~4.8%~~3.5% and ~~7.9%~~4.8%, respectively, for the comparable periods. Management will continue to monitor the national, regional and local economic environment in relation to COVID-19 and its impact on unemployment, business outlook and real estate values in the Company’s market area.

Union Bankshares, Inc. Page 37

Repossessed assets, nonaccrual loans, and loans that are 90 days or more past due are considered to be nonperforming assets. The following table ~~shows~~details the composition of the Company's nonperforming assets ~~at the dates indicated~~ and ~~trends in~~amounts utilized to calculate certain asset quality ratios monitored by the Company's management ~~in reviewing asset quality:~~

September 30,
2021 December 31,
2020 September 30,
2020
(Dollars in thousands)
Nonaccrual loans $ 5,667 $ 2,410 $ 2,451
Accruing loans 90+ days delinquent 43 511 964
Total nonperforming loans (1) 5,710 2,921 3,415
OREO 47 50 —
Total nonperforming assets $ 5,757 $ 2,971 $ 3,415
ALL to loans not held for sale 1.11 % 1.07 % 1.00 %
ALL to nonperforming loans 149.93 % 283.16 % 225.21 %
Nonperforming loans to total loans 0.72 % 0.36 % 0.43 %
Nonperforming assets to total assets 0.50 % 0.27 % 0.34 %
Delinquent loans (30 days to nonaccruing) to total loans 0.90 % 0.83 % 0.75 %
Net (recoveries) charge-offs (annualized) to average loans not held for sale (0.01) % 0.01 % 0.01 %

~~____________________~~

~~(1)The Company had guarantees of U.S. or state government agencies on certain~~as of the ~~above nonperforming loans totaling $72 thousand at~~balance sheet dates and September 30, ~~2021, $177 thousand at December 31, 2020, and $178 thousand at September 30, 2020.~~2021:


	September 30, 2022		December 31, 2021		September 30, 2021
	(Dollars in thousands)
Nonaccrual loans	$	1,381	$	4,650	$	5,667
Loans past due 90 days or more and still accruing interest	308		98		43
Total nonperforming loans	1,689		4,748		5,710
OREO	—		—		47

Total nonperforming assets	$	1,689	$	4,748	$	5,757

Guarantees of U.S. or state government agencies on the above nonperforming loans	$	131	$	113	$	72
TDR loans	$	1,757	$	2,215	$	2,766
Allowance for loan losses	$	8,340	$	8,336	$	8,561
Net recoveries	$	(4)	$	(65)	$	(65)
Total loans outstanding	$	941,191	$	800,879	$	790,007
Total average loans outstanding	$	850,869	$	808,894	$	817,168

The level of nonaccrual loans increased $3.3 million, or 135.1%, since December 31, 2020 primarily due to a CRE hospitality relationship that was placed into non-accrual during the first quarter of 2021. Accruing loans delinquent 90 days or more decreased $468 thousand, or 91.6%, during the same time period. There were no loans in process of foreclosure at

Union Bankshares, Inc. Page 3938

The following table shows trends of certain asset quality ratios monitored by the Company's management as of the balance sheet dates and September 30, ~~2021. The state-mandated moratorium on foreclosures~~2021:


	September 30, 2022			December 31, 2021			September 30, 2021
	(Dollars in thousands)
Allowance for loan losses to total loans outstanding	0.89		%	1.04		%	1.08		%

Allowance for loan losses to nonperforming loans	493.78		%	175.57		%	149.93		%
Allowance for loan losses to nonaccrual loans	603.91		%	179.27		%	151.07		%
Nonperforming loans to total loans	0.18		%	0.59		%	0.72		%
Nonperforming assets to total assets	0.13		%	0.39		%	0.50		%
Nonaccrual loans to total loans	0.15		%	0.58		%	0.72		%
Delinquent loans (30 days to nonaccruing) to total loans	0.54		%	0.82		%	0.90		%
Net (recoveries) charge-offs to total average loans (annualized)	—		%	(0.01)		%	(0.01)		%
Residential real estate	—		%	(0.03)		%	(0.04)		%
Net (recoveries) charge-offs	$	—		$	(66)		$	(66)
Total average loans	$	292,147		$	243,212		$	241,838
Construction real estate	—		%	—		%	—		%
Net (recoveries) charge-offs	$	—		$	—		$	—
Total average loans	$	66,031		$	62,678		$	63,823
Commercial real estate	—		%	—		%	—		%
Net (recoveries) charge-offs	$	—		$	—		$	—
Total average loans	$	364,413		$	324,101		$	319,270
Commercial	—		%	—		%	—		%
Net (recoveries) charge-offs	$	(1)		$	—		$	—
Total average loans	$	44,477		$	88,626		$	100,203
Consumer	(0.18)		%	0.04		%	0.05		%
Net (recoveries) charge-offs	$	(3)		$	1		$	1
Total average loans	$	2,258		$	2,608		$	2,611
Municipal	—		%	—		%	—		%
Net (recoveries) charge-offs	$	—		$	—		$	—
Total average loans	$	81,543		$	87,669		$	89,423

There was one residential real estate loan totaling $28 thousand in ~~Vermont related to the COVID-19 emergency was lifted effective July 15,~~process of foreclosure at September 30, 2022 and no loans in process of foreclosure at December 31, 2021. The aggregate interest income not recognized on nonaccrual loans approximated ~~$492~~$463 thousand as of September 30, ~~2021~~2022 and ~~$420~~$504 thousand as of December 31, ~~2020.~~2021.

The Company had loans rated substandard that were on performing status totaling ~~$1.2~~$1.3 million at September 30, ~~2021~~2022 compared to ~~$2.2 million~~$769 thousand at December 31, ~~2020.~~2021. In management's view, substandard loans represent a higher degree of risk of becoming nonperforming loans in the future.

In March 2020, the federal banking agencies issued guidance, confirmed by the FASB, that certain short-term modifications made to loans to ~~a borrower~~borrowers affected by the COVID-19 pandemic and government shutdown orders would not be considered TDRs under specified ~~circumstances (See Notes 2 and 5). Through~~circumstances. As of September 30, ~~2021, the Company had executed modifications under this guidance on outstanding loan balances of $145.6 million~~2022, there were no loans that ~~carried accrued interest of $926 thousand. Of the total modifications executed, outstanding residential loan balances of $748 thousand~~ remained subject to modified ~~terms and carried accrued interest of $34 thousand as of September 30, 2021. The Company intends to continue to follow the guidance of the banking regulators in making TDR determinations.~~terms.

Allowance for Loan Losses. Some of the Company’s loan customers ultimately do not make all of their contractually scheduled payments, whether due to the effects of the COVID-19 pandemic or otherwise, requiring the Company to charge off a portion or all of the remaining principal balance due. The Company maintains an ALL to absorb such losses. The ALL is maintained at a level believed by management to be appropriate to absorb probable credit losses inherent in the loan portfolio as of the evaluation date; however, actual loan losses may vary from current estimates. The Company's policy and methodologies for establishing the ALL, described in the Company's ~~2020~~2021 Annual Report did not change during the first nine months of ~~2021.~~2022. The Company's ALL was ~~$8.6~~$8.3 million at September 30, ~~2021~~2022 and ~~$8.3 million as of~~ December 31, ~~2020.~~2021.

Union Bankshares, Inc. Page 39

Impaired loans, including ~~$2.4~~$1.8 million of TDR loans, were ~~$7.0~~$9.6 million at September 30, ~~2021,~~2022, with government ~~guaranties~~guarantees of ~~$350~~$344 thousand and a specific reserve amount allocated of ~~$46~~$22 thousand. Impaired loans, including ~~$2.9~~$2.2 million of TDR loans, were ~~$4.6~~$6.8 million at December 31, ~~2020,~~2021, with government guaranties of ~~$514~~$423 thousand and a specific reserve amount allocated of ~~$58~~$46 thousand. Based on management's evaluation of the Company's historical loss experience on substandard commercial loans, commercial loan relationships with aggregate balances greater than $500 thousand are evaluated individually for impairment, with a specific reserve allocated when warranted. Commercial loans with balances under this threshold are collectively evaluated for impairment as a homogeneous pool of loans, unless such loans are subject to a restructuring agreement or have been identified as impaired as part of a larger customer relationship. The specific reserve amount allocated to individually identified impaired loans decreased ~~$12~~$24 thousand as a result of the September 30, ~~2021~~2022 impairment evaluation.

The following table reflects activity in the ALL for the three and nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:

For the Three Months
Ended September 30, For the Nine Months
Ended September 30,
2021 2020 2021 2020
(Dollars in thousands)
Balance at beginning of period $ 8,505 $ 6,888 $ 8,271 $ 6,122
Charge-offs (2) (3) (2) (60)
Recoveries 58 6 67 29
Net recoveries (charge-offs) 56 3 65 (31)
Provision for loan losses — 800 225 1,600
Balance at end of period $ 8,561 7,691 $ 8,561 $ 7,691

~~Union Bankshares, Inc. Page 40~~


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
	(Dollars in thousands)
Balance at beginning of period	$	8,340	$	8,505	$	8,336	$	8,271
Charge-offs	—		(2)		(2)		(2)
Recoveries	—		58		6		67
Net recoveries	—		56		4		65
Provision for loan losses	—		—		—		225
Balance at end of period	$	8,340	$	8,561	$	8,340	$	8,561

The following table (net of loans held for sale) shows the internal breakdown by risk component of the Company's ALL and the percentage of loans in each category to total loans in the respective portfolios at the dates indicated:


		September 30, 2021			December 31, 2020				September 30, 2022			December 31, 2021
		Amount		Percent	Amount		Percent		Amount		Percent	Amount		Percent
		(Dollars in thousands)							(Dollars in thousands)
Residential real estate	Residential real estate	$	2,060	29.2	$	1,776	23.8	Residential real estate	$	2,246	34.8	$	2,068	31.4
Construction real estate	Construction real estate	1,000		9.6	763		7.4	Construction real estate	1,108		10.6	837		8.3
Commercial real estate	Commercial real estate	4,015		41.7	4,199		41.6	Commercial real estate	3,919		40.2	4,122		43.8
Commercial	Commercial	335		8.4	458		14.1	Commercial	310		4.5	275		6.3
Consumer	Consumer	13		0.3	15		0.3	Consumer	10		0.2	11		0.3
Municipal	Municipal	137		10.8	214		12.8	Municipal	98		9.7	86		9.9
Unallocated	Unallocated	1,001		—	846		—	Unallocated	649		—	937		—
Total	Total	$	8,561	100.0	$	8,271	100.0	Total	$	8,340	100.0	$	8,336	100.0

Notwithstanding the categories shown in the table above or any specific allocation under the Company's ALL methodology, all funds in the ALL are available to absorb loan losses in the portfolio, regardless of loan category or specific allocation.

Management believes, in its best estimate, that the ALL at September 30, ~~2021~~2022 is appropriate to cover probable credit losses inherent in the Company’s loan portfolio as of such date. However, there can be no assurance that the Company will not sustain losses in future periods which could be greater than the size of the ALL at September 30, ~~2021.~~2022. In addition, our banking regulators, as an integral part of their examination process, periodically review our ALL. Such agencies may require us to recognize adjustments to the ALL based on their judgments about information available to them at the time of their examination. A large adjustment to the ALL for losses in future periods could require increased provisions to replenish the ALL, which could negatively affect earnings.

Union Bankshares, Inc. Page 40

Investment Activities. During the first nine months of ~~2021,~~2022, investment securities classified as AFS, which are carried at fair value, decreased $27.7 million to $240.1 million, comprising 18.5% of total assets, compared to $267.8 million, or 22.2% of total assets at December 31, 2021. Despite this decrease in the overall fair value of the investment portfolio, the amortized cost of investment securities classified as AFS increased ~~$78.4~~$22.2 million ~~to $184.2 million, comprising 15.9%~~during the first nine months of ~~total assets, compared to $105.8 million, or 9.7% of total assets at December 31, 2020.~~2022. The Company used excess liquidity to increase the investment portfolio during 2021 and the first half of 2022 to obtain higher yields than what would have been earned at the ~~current~~ Federal Funds rate.

Net unrealized losses ~~for~~in the Company’s AFS investment securities portfolio were ~~$238 thousand~~$51.8 million as of September 30, ~~2021,~~2022, compared to net unrealized ~~gains~~losses of ~~$3.3~~$2.0 million as of December 31, ~~2020.~~2021. The Company’s accumulated OCI component of stockholders’ equity at September 30, ~~2021~~2022 reflected cumulative net unrealized losses on investment securities of ~~$188 thousand.~~$40.9 million. There were no securities classified as HTM at September 30, ~~2021~~2022 or December 31, ~~2020.~~2021. The rapid increase in the 10-year treasury rate in 2022 has negatively impacted the fair value of the investment portfolio as this index is typically tied to mortgage-backed securities. No declines in value were deemed by management to be OTT at September 30, ~~2021.~~2022. Deterioration in credit quality and/or imbalances in liquidity that may result from changes in financial market conditions might adversely affect the fair values of the Company’s investment portfolio and the amount of gains or losses ultimately realized on the sale of such securities and may also increase the potential that unrealized losses will be designated as OTT in future periods, resulting in write-downs and charges to earnings. ~~There~~

Investment securities AFS with a carrying amount of $434 thousand and $608 thousand were ~~no investment securities~~ pledged as ofcollateral for public unit deposits or for other purposes as required or permitted by law at September 30, ~~2021 or~~2022 and December 31, ~~2020.~~

~~Union Bankshares, Inc. Page 41~~

2021, respectively.

Deposits. The following table shows information concerning the Company's average deposits by account type and weighted average nominal rates at which interest was paid on such deposits for the nine months ended September 30, ~~2021~~2022 and ~~2020:~~2021:


		Nine Months Ended September 30, 2021					Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2022					Nine Months Ended September 30, 2021
		Average Amount		Percent of Total Deposits	Average Rate		Average Amount		Percent of Total Deposits	Average Rate			Average Amount		Percent of Total Deposits	Average Rate		Average Amount		Percent of Total Deposits	Average Rate
		(Dollars in thousands)											(Dollars in thousands)
Nontime deposits:	Nontime deposits:											Nontime deposits:
Noninterest bearing deposits	Noninterest bearing deposits	$	234,243	23.0	—		$	167,845	20.5	—		Noninterest bearing deposits	$	312,331	27.2	—		$	234,243	23.0	—
Interest bearing checking accounts	Interest bearing checking accounts	247,455		24.3	0.24	%	188,286		23.0	0.38	%	Interest bearing checking accounts	287,296		25.0	0.26	%	247,455		24.3	0.24	%
Money market accounts	Money market accounts	251,149		24.7	0.67	%	197,637		24.1	1.05	%	Money market accounts	249,018		21.7	0.53	%	251,149		24.7	0.67	%
Savings accounts	Savings accounts	162,933		16.0	0.07	%	119,105		14.6	0.12	%	Savings accounts	188,568		16.4	0.04	%	162,933		16.0	0.07	%
Total nontime deposits	Total nontime deposits	895,780		88.0	0.27	%	672,873		82.2	0.44	%	Total nontime deposits	1,037,213		90.3	0.20	%	895,780		88.0	0.27	%
Time deposits:
Less than $100,000		59,408		5.9	0.75	%	74,643		9.1	1.17	%
$100,000 and over		62,231		6.1	0.97	%	70,931		8.7	1.53	%

Total time deposits	Total time deposits	121,639		12.0	0.86	%	145,574		17.8	1.35	%	Total time deposits	111,202		9.7	0.60	%	121,639		12.0	0.86	%
Total deposits	Total deposits	$	1,017,419	100.0	0.34	%	$	818,447	100.0	0.60	%	Total deposits	$	1,148,415	100.0	0.24	%	$	1,017,419	100.0	0.34	%

During the first nine months of ~~2021,~~2022, average total deposits grew ~~$199.0~~$131.0 million, or ~~24.3%~~12.9%, compared to the nine months ended September 30, ~~2020,~~2021, with growth in all categories except time ~~deposits.~~deposits and money market accounts. The increase in average balances for nontime deposits was attributable to ~~proceeds from PPP loans deposited into customer accounts at Union,~~ customer's receipt of government stimulus payments, and the general reduction in spending by customers due to COVID-19. The average balances of time deposits decreased due to the maturing of higher rate paying time deposit accounts, ~~have matured and~~with customers ~~have~~ primarily ~~transferred~~transferring those funds into other deposit accounts.

The Company participates in CDARS, which permits ~~the Company~~it to offer full deposit insurance coverage to its customers by exchanging deposit balances with other CDARS participants. CDARS also provides the Company with an additional source of funding and liquidity through the purchase of deposits. There were no purchased CDARS deposits as of September 30, ~~2021~~2022 or December 31, ~~2020.~~2021. There were $12.2 million and $13.6 million of time deposits of $250,000 or less on the balance sheet at September 30, ~~2021~~2022 and ~~$14.2 million at~~ December 31, ~~2020,~~2021, respectively, which were exchanged with other CDARS participants.

The Company also participates in the ICS program, a service through which it can offer its customers demand or savings products with access to unlimited FDIC insurance, while receiving reciprocal deposits from other FDIC-insured banks. Like the exchange of certificate of deposit accounts through CDARS, exchange of demand or savings deposits through ICS provides a depositor with full deposit insurance coverage of excess balances, thereby helping the Company retain the full amount of the deposit on its balance sheet. As with the CDARS program, in addition to reciprocal deposits, participating banks may also purchase one-way ICS deposits. There were ~~$116.1~~$131.8 million and ~~$146.2~~$155.3 million in exchanged ICS demand and money market deposits on the balance sheet at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. There were no purchased ICS deposits at September 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

Union Bankshares, Inc. Page 41

At ~~December 31, 2020,~~September 30, 2022 there were ~~$15.0~~$32.0 million of retail brokered deposits at a rate of 2.40% issued under a master certificate of deposit program with a deposit broker for the purpose of providing a supplemental source of funding and liquidity. These deposits matured in October 2022 and were replaced with $33.0 million of retail brokered deposits at a rate of 3.45% for a three month term. There were no retail brokered deposits at ~~September 30,~~December 31, 2021.

The following table provides a maturity distribution of the Company’s time deposits in amounts in excess of ~~$100,000 and over~~the $250 thousand FDIC insurance limit at September 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

September 30, 2021 December 31, 2020
(Dollars in thousands)
Within 3 months $ 11,223 $ 22,722
3 to 6 months 15,583 15,828
6 to 12 months 21,623 22,629
Over 12 months 7,945 9,194
$ 56,374 $ 70,373

~~Union Bankshares, Inc. Page 42~~

The Company's time deposits in amounts of $100 thousand and over decreased $14.0 million, or 19.9%, between December 31, 2020 and September 30, 2021, resulting primarily from the maturity, without renewal, of customer time deposits originated in prior periods when promotions were offered.


	September 30, 2022		December 31, 2021
	(Dollars in thousands)
Within 3 months	$	5,053	$	4,249
3 to 6 months	1,011		5,576
6 to 12 months	5,454		4,536
Over 12 months	4,239		1,862
	$	15,757	$	16,223

A provision of the Dodd-Frank Act permanently raised FDIC deposit insurance coverage to $250 thousand per depositor per insured depository institution for each account ownership category. ~~At September 30, 2021, the Company had deposit accounts~~Uninsured deposits have been estimated to include deposits with ~~less~~balances greater than ~~the maximum FDIC insured deposit amount of $250 thousand totaling $695.6 million, or 66.8% of total deposits. An additional $32.0 million of municipal deposits were over~~ the FDIC insurance coverage limit atof $250 thousand. This estimate is based on the same methodologies and assumptions used for regulatory reporting requirements. At September 30, ~~2021 and~~2022, the Company had estimated uninsured deposit accounts totaling $405.0 million, or 33.9% of total deposits. Uninsured deposits include $30.4 million of municipal deposits that were collateralized under applicable state regulations by investment securities or letters of credit issued by the FHLB at September 30, 2022, as described below under Borrowings.

Borrowings. Advances from the FHLB are another key source of funds to support earning assets. These funds are also used to manage the Bank's interest rate and liquidity risk exposures. The Company's borrowed funds at September 30, ~~2021~~2022 were comprised of borrowings from the FHLB of ~~$7.0~~$25.0 million at a weighted average rate of ~~3.13%~~3.09%. At December 31, ~~2020, borrowed funds~~2021, there were ~~comprised of borrowings from the FHLB of $7.2 million at a weighted average rate of 3.07%.~~no borrowings.

The Company has the authority, up to its available borrowing capacity with the FHLB, to collateralize public unit deposits with letters of credit issued by the FHLB. FHLB letters of credit in the amount of ~~$32.7~~$42.5 million and ~~$23.6~~$37.5 million were utilized as collateral for these deposits at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Total fees paid by the Company in connection with the issuance of these letters of credit were $8 thousand and $23 thousand for the three and nine months ended September 30, 2022 respectively, and $23 thousand and $39 thousand for the three and nine months ended September 30, 2021, ~~respectively, and $7 thousand and $23 thousand for the three and nine months ended September 30, 2020,~~ respectively.

In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 ~~(the Notes)~~ to certain qualified institutional buyers and accredited investors. The Notes ~~will~~ initially bear interest, payable semi-annually, at the rate of 3.25% per annum, until September 1, 2026. From and including September 1, 2026, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month secured overnight financing rate (SOFR) plus 263 basis points. The Notes are presented in the consolidated balance sheets net of unamortized issuance costs of ~~$336~~$304 thousand and $329 thousand at September 30, 2022 and December 31, 2021, ~~in the consolidated balance sheets.~~respectively.

Commitments, Contingent Liabilities, and Off-Balance-Sheet Arrangements. The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers, to reduce its own exposure to fluctuations in interest rates and to implement its strategic objectives. These financial instruments include commitments to extend credit, standby letters of credit, interest rate caps and floors written on adjustable-rate loans, commitments to participate in or sell loans, commitments to buy or sell securities, certificates of deposit or other investment instruments and risk-sharing commitments or guarantees on certain sold loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The contractual or notional amounts of these instruments reflect the extent of involvement the Company has in a particular class of financial instruments.

The Company's maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. For interest rate caps and floors written on adjustable-rate loans, the contractual or notional amounts do not represent the Company’s exposure to credit loss. The Company controls the risk of interest rate cap agreements through credit approvals, limits, and monitoring procedures. The Company generally requires collateral or other security to support financial instruments with credit risk.

Union Bankshares, Inc. Page 42

The following table details the contractual or notional amount of financial instruments that represented credit risk at the balance sheet dates:


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
		(Dollars in thousands)					(Dollars in thousands)
Commitments to originate loans	Commitments to originate loans	$	93,629	$	61,431	Commitments to originate loans	$	32,217	$	48,910
Unused lines of credit	Unused lines of credit	151,287		132,502		Unused lines of credit	192,796		168,442
Standby and commercial letters of credit	Standby and commercial letters of credit	2,364		3,115		Standby and commercial letters of credit	1,729		2,158
Credit card arrangements	Credit card arrangements	292		308		Credit card arrangements	224		170
FHLB Mortgage Partnership Finance credit enhancement obligation, net	FHLB Mortgage Partnership Finance credit enhancement obligation, net	817		728		FHLB Mortgage Partnership Finance credit enhancement obligation, net	826		818

Commitment to purchase investment in a real estate limited partnership	Commitment to purchase investment in a real estate limited partnership	3,000		2,000		Commitment to purchase investment in a real estate limited partnership	—		4,574

Total	Total	$	251,389	$	200,084	Total	$	227,792	$	225,072

Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan commitments generally have a fixed expiration date or other termination clause and may

~~Union Bankshares, Inc. Page 43~~

require payment of a fee. Since many of the loan commitments are expected to expire without being drawn upon and not all credit lines will be utilized, the total commitment amounts do not necessarily represent future cash requirements. Lines of credit incur seasonal volume fluctuations due to the nature of some customers' businesses, such as tourism and maple syrup products production. The increase in commitments to originate loans at September 30, 2021 from December 31, 2020 is primarily the result of a $28.8 million increase in commitments to originate commercial real estate and commercial construction loans.tourism. The increase in unused lines of credit at September 30, ~~2021 from~~2022 compared to December 31, ~~2020~~2021 is primarily related to an increase in unused residential construction ~~loan availability~~lines of ~~$17.7~~credit of $25.7 million.

The Company did not hold any derivative or hedging instruments at September 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

In addition to commitments arising from the Company’s financial instruments, in the normal course of business the Company enters into contractual commitments from time to time for the purchase or lease of property, including real property for its banking premises.

Liquidity. Liquidity is a measurement of the Company’s ability to meet potential cash requirements, including ongoing commitments to fund deposit withdrawals, repay borrowings, fund investment and lending activities, purchase and lease commitments, and for other general business purposes. The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet our cash flow needs in the most economical and expedient manner. The Company’s principal sources of funds are deposits; whole-sale funding options including purchased deposits, amortization, prepayment and maturity of loans, investment securities, interest bearing deposits and other short-term investments; sales of securities and loans AFS; earnings; and funds provided from operations. Contractual principal repayments on loans have been a relatively predictable source of ~~funds; however, payment deferrals approved for borrowers as a result of COVID-19 will delay receipt of contractual payments.~~funds. Deposit flows and loan and investment prepayments are less predictable and can be significantly influenced by market interest rates, economic conditions, and rates offered by our competitors. Managing liquidity risk is essential to maintaining both depositor confidence and earnings stability.

As of September 30, ~~2021,~~2022, Union, as a member of FHLB, had access to unused lines of credit up to ~~$98.8~~$101.3 million over and above the ~~$40.7~~$68.4 million in combined outstanding FHLB borrowings and other credit, subject to collateralization ~~subject~~and to the purchase of required FHLB Class B common stock and evaluation by the FHLB of the underlying collateral available. This line of credit can be used for either short-term or long-term liquidity or other funding needs.

Union also maintains an IDEAL Way Line of Credit with the FHLB. The total line available was $551 thousand at September 30, ~~2021.~~2022. There were no borrowings against this line of credit as of such date. Interest on this line is chargeable at a rate determined by the FHLB and payable monthly. Should Union utilize this line of credit, qualified portions of the loan and investment portfolios would collateralize these borrowings.

In addition to its borrowing arrangements with the FHLB, Union maintains a pre-approved federal funds line of credit totaling $15.0 million with an upstream correspondent bank, a master brokered deposit agreement with a brokerage firm, and one-way buy options with CDARS and ICS. In addition to the funding sources available to Union, the Company maintains a $5.0 million revolving line of credit with a correspondent bank. At September 30, ~~2021,~~2022, there were no purchased ICS or CDARS deposits, no$32.0 million in retail brokered deposits issued under a master certificate of deposit program with a broker, and no outstanding advances on the Union or Company correspondent lines.

Union's investment and residential loan portfolios also provide a significant amount of contingent liquidity that could be accessed in a reasonable time period through sales of those portfolios. Additional contingent liquidity sources are available with further access to the brokered deposit market. These sources are considered as liquidity alternatives in our contingent liquidity plan. Management believes the Company has sufficient liquidity to meet all reasonable borrower, depositor, and creditor needs in the present economic environment. However, any projections of future cash needs and flows are subject to substantial uncertainty, including factors outside the Company's control.

Union Bankshares, Inc. Page 43

Capital Resources. Capital management is designed to maintain an optimum level of capital in a cost-effective structure that meets target regulatory ratios, supports management’s internal assessment of economic capital, funds the Company’s business strategies and builds long-term stockholder value. Dividends are generally in line with long-term trends in earnings per share and conservative earnings projections, while sufficient profits are retained to support anticipated business growth, fund strategic investments, maintain required regulatory capital levels and provide continued support for deposits. The Company continues to evaluate growth opportunities both through internal growth or potential acquisitions.

~~Union Bankshares, Inc. Page 44~~

Stockholders’ equity ~~increased~~decreased from ~~$80.9~~$84.3 million at December 31, ~~2020~~2021 to ~~$83.7~~$49.7 million at September 30, ~~2021,~~2022, reflecting ~~net income of $9.8 million for the first nine months of 2021,~~ an increase of $274 thousand from stock based compensation, a $48 thousand increase due to the issuance of 2,000 shares of common stock from the exercise of incentive stock options and a $30 thousand increase due to the issuance of common stock under the DRIP. These increases were partially offset by a decrease of $2.8$39.4 million in accumulated other comprehensive ~~income~~loss due to a decrease in the fair market value of the Company's AFS investment securities, cash dividends declared of ~~$4.4~~$4.7 million and stock repurchases of $2$79 thousand during the nine months ended September 30, ~~2021.~~2022. These decreases were partially offset by net income of $9.2 million for the first nine months of 2022, an increase of $359 thousand from stock based compensation and a $42 thousand increase due to the issuance of common stock under the DRIP. The components of other comprehensive ~~income~~loss are illustrated in Note 1110 of the unaudited consolidated financial statements.

The Company has 7,500,000 shares of $2.00 par value common stock authorized. As of September 30, ~~2021,~~2022, the Company had ~~4,958,884~~4,970,509 shares issued, of which ~~4,485,154~~4,495,887 were outstanding and ~~473,730~~474,622 were held in treasury.

In January ~~2021,~~2022, the Company's Board reauthorized for ~~2021~~2022 the limited stock repurchase plan that was initially established in May of 2010. The limited stock repurchase plan allows the repurchase of up to a fixed number of shares of the Company's common stock each calendar quarter in open market purchases or privately negotiated transactions, as management deems advisable and as market conditions may warrant. The repurchase authorization for a calendar quarter (currently 2,500 shares) expires at the end of that quarter to the extent it has not been exercised, and is not carried forward into future quarters. The quarterly repurchase authorization expires on December 31, ~~2021,~~2022, unless reauthorized. The Company repurchased 972,650 shares under this program during the first nine months of ~~2021~~2022 at a total cost of $2$79 thousand.

The Company maintains a DRIP whereby registered stockholders may elect to reinvest cash dividends and make optional cash contributions to purchase additional shares of the Company's common stock. The Company has reserved 200,000 shares of its common stock for issuance and sale under the DRIP. As of September 30, ~~2021, 5,138~~2022, 6,896 shares of stock had been issued from treasury stock under the DRIP.

The Company (on a consolidated basis) and Union are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's and Union's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Union must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and Union's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Under the ~~current~~standard regulatory capital guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0%, a minimum Tier I risk-based capital ratio of 6.0%, a minimum common equity Tier I risk-based capital ratio of 4.5%, and a minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a 2.5% capital conservation buffer consisting of common Tier I equity, increasing the minimum required total risk-based capital, Tier I risk-based and common equity Tier I capital to risk-weighted assets they must maintain to avoid limits on capital distributions and certain bonus payments to executive officers and similar employees.

The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 directed the federal banking regulators to adopt rules providing for a simplified regulatory capital framework for qualifying community banking organizations. In September 2019, the banking regulators finalized a rule that introduced the community bank leverage ratio ~~(CBLR)~~("CBLR") framework as an optional simplified measure of capital adequacy for qualifying institutions. Beginning with the March 31, 2020 regulatory capital calculation, a banking organization with a Tier I leverage ratio greater than 9.0%, less than $10 billion in average consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities may opt into the CBLR framework and will be deemed "well capitalized" and will not be required to report or calculate risk-based capital. A community banking organization that does not meet the requirements for use of the simplified CBLR framework will continue to calculate its regulatory capital ratios under ~~existing~~standard guidelines. A provision of the CARES Act temporarily lowers the minimum Tier 1 leverage ratio to 8.0% for a banking organization to elect to use the CBLR framework, with a phased increase back to 9.0% by the end of 2021. As of September 30, ~~2021,~~2022, the Tier I leverage ratios for the Company and Union were ~~7.26%~~6.75% and ~~8.54%~~7.96%, respectively.

Union Bankshares, Inc. Page 4544

As shown in the table below, as of September 30, ~~2021,~~2022, both the Company and Union met all capital adequacy requirements to which they are ~~currently~~ subject and Union exceeded the requirements for a "well capitalized" bank under the FDIC's Prompt Corrective Action framework. There were no conditions or events between September 30, ~~2021~~2022 and the date of this report that management believes have changed either ~~Company’s~~company’s regulatory capital category.


		Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2021		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2022														As of September 30, 2022	Amount		Ratio		Amount		Ratio		Amount		Ratio
		(Dollars in thousands)													(Dollars in thousands)
Company:	Company:													Company:
Total capital to risk weighted assets	Total capital to risk weighted assets	$	106,084	16.16	%	$	52,517	8.00	%	N/A				Total capital to risk weighted assets	$	112,978	13.69	%	$	66,021	8.00	%	N/A
Tier I capital to risk weighted assets	Tier I capital to risk weighted assets	81,711		12.45	%	39,379		6.00	%	N/A				Tier I capital to risk weighted assets	88,442		10.72	%	49,501		6.00	%	N/A
Common Equity Tier 1 to risk weighted assets	Common Equity Tier 1 to risk weighted assets	81,711		12.45	%	29,534		4.50	%	N/A				Common Equity Tier 1 to risk weighted assets	88,442		10.72	%	37,126		4.50	%	N/A
Tier I capital to average assets	Tier I capital to average assets	81,711		7.26	%	45,020		4.00	%	N/A				Tier I capital to average assets	88,442		6.75	%	52,410		4.00	%	N/A

Union:	Union:													Union:
Total capital to risk weighted assets	Total capital to risk weighted assets	$	104,219	15.91	%	$	52,404	8.00	%	$	65,505	10.00	%	Total capital to risk weighted assets	$	112,525	13.65	%	$	65,949	8.00	%	$	82,436	10.00	%
Tier I capital to risk weighted assets	Tier I capital to risk weighted assets	96,024		14.65	%	39,327		6.00	%	52,436		8.00	%	Tier I capital to risk weighted assets	104,185		12.64	%	49,455		6.00	%	65,940		8.00	%
Common Equity Tier 1 to risk weighted assets	Common Equity Tier 1 to risk weighted assets	96,024		14.65	%	29,495		4.50	%	42,605		6.50	%	Common Equity Tier 1 to risk weighted assets	104,185		12.64	%	37,091		4.50	%	53,576		6.50	%
Tier I capital to average assets	Tier I capital to average assets	96,024		8.54	%	44,976		4.00	%	56,220		5.00	%	Tier I capital to average assets	104,185		7.96	%	52,354		4.00	%	65,443		5.00	%

Dividends paid by Union are the primary source of funds available to the Company for payment of dividends to its stockholders. Union is subject to certain requirements imposed by federal banking laws and regulations, which among other things, establish minimum levels of capital and restrict the amount of dividends that may be distributed by Union to the Company.

Cash dividends of ~~$0.33~~$0.35 per share were paid during the ~~second~~third quarter of ~~2021~~2022 and ~~have been~~were declared for the ~~third~~fourth quarter, payable on November ~~4, 2021~~3, 2022 to stockholders of record on October ~~30, 2021.~~29, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Omitted, in accordance with the regulatory relief available to smaller reporting companies in SEC Release Nos. 33-10513 (effective September 10, 2018).

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer, with the assistance of the Disclosure Control Committee, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, ~~2021.~~2022. Based on this evaluation they concluded that those disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files with the Commission is accumulated and communicated to the Company’s management, including its principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required information.

Changes in Internal Controls over Financial Reporting. There was no change in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

~~Union Bankshares, Inc. Page 46~~

PART II OTHER INFORMATION

Item 1. Legal Proceedings.

Union Bankshares, Inc. Page 45

Item 1A. Risk Factors

There have been no material changes in the risk factors discussed in Part I-Item 1A, "Risk Factors" in the Company’s ~~2020~~2021 Annual Report since the date of the filing of that report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The Company did not issue any unregistered shares during the quarter ended September 30, ~~2021.~~2022.

There ~~was~~were no ~~repurchase~~repurchases of the Company's equity securities during the quarter ended September 30, ~~2021.~~2022.

Item 6. Exhibits.


31.1			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2			Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101			The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021~~2022 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, (iii) the unaudited consolidated statements of comprehensive income for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, (iv) the unaudited consolidated statements of changes in stockholders' equity, (iv) the unaudited consolidated statements of cash flows and (v) related notes.
104			Cover page interactive data file (embedded within exhibit 101).

____________________

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


						Union Bankshares, Inc.

November ~~15, 2021~~14, 2022						/s/ David S. Silverman
						David S. Silverman
						Director, President and Chief Executive Officer


November ~~15, 2021~~14, 2022						/s/ Karyn J. Hale
						Karyn J. Hale
						Chief Financial Officer
						(Principal Financial Officer)

Union Bankshares, Inc. Page 4746

EXHIBIT INDEX


31.1			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2			Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101			The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021~~2022 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, (iii) the unaudited consolidated statements of comprehensive income for the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, (iv) the unaudited consolidated statements of changes in stockholders' equity, (iv) the unaudited consolidated statements of cash flows and (v) related notes.

104			Cover page interactive data file (embedded within exhibit 101).

____________________

Union Bankshares, Inc. Page 4847


Item 1. Financial Statements.
Unaudited Interim Consolidated Financial Statements of Union Bankshares, Inc. and Subsidiary
Consolidated Balance Sheets			1
Consolidated Statements of Income			2
Consolidated Statements of Comprehensive (Loss) Income			3
Consolidated Statements of Changes in Stockholders' Equity			4
Consolidated Statements of Cash Flows			5
Notes to Unaudited Interim Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			2726
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			4645
Item 4. Controls and Procedures.			4645

PART II OTHER INFORMATION

Item 1. Legal Proceedings.			4745
Item 1A. Risk Factors.			4745
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			4746
Item 6. Exhibits.			4746

Signatures			4746


	As of September 30, 2020						For The Three Months Ended September 30, 2020				For the Nine Months Ended September 30, 2020
	Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Residential real estate	$	1,805	$	2,413	$	33	$	1,882	$	19	$	1,692	$	47
Construction real estate	212		233		—		215		1		218		3
Commercial real estate	3,018		3,245		36		3,051		26		3,116		64
Commercial	229		233		7		240		4		264		16
Total	$	5,264	$	6,124	$	76	$	5,388	$	50	$	5,290	$	130



	New TDRs During the					New TDRs During the
	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Residential real estate	2	$	54	$	56	8	$	547	$	549


	September 30, 2021			December 31, 2020			September 30, 2020
	(Dollars in thousands)
Nonaccrual loans	$	5,667		$	2,410		$	2,451
Accruing loans 90+ days delinquent	43			511			964
Total nonperforming loans (1)	5,710			2,921			3,415
OREO	47			50			—

Total nonperforming assets	$	5,757		$	2,971		$	3,415
ALL to loans not held for sale	1.11		%	1.07		%	1.00		%
ALL to nonperforming loans	149.93		%	283.16		%	225.21		%
Nonperforming loans to total loans	0.72		%	0.36		%	0.43		%
Nonperforming assets to total assets	0.50		%	0.27		%	0.34		%
Delinquent loans (30 days to nonaccruing) to total loans	0.90		%	0.83		%	0.75		%
Net (recoveries) charge-offs (annualized) to average loans not held for sale	(0.01)		%	0.01		%	0.01		%